THE AIR UP THERE: The Australian dollar hasn't seen a gain this large in years

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  • The Australian dollar ripped higher on Thursday, recording its largest one-day percentage gain against the greenback since March 15, 2017.
  • A massive Australian trade surplus for September, optimism towards Brexit and trade negotiations between the US and China and slightly softer US manufacturing activity in October proved to be a potent mix, leading to a raft of short-covering in not only the Aussie dollar but also the Kiwi, British pound and Chinese yuan.
  • Australia’s September retail sales report will be released today. US non-farm payrolls for October will dominate proceedings later in the session.

The Australian dollar ripped higher on Thursday, recording its largest one-day percentage gain against the greenback since March 15, 2017.

A massive Australian trade surplus for September, optimism towards Brexit and trade negotiations between the US and China and slightly softer US manufacturing activity in October proved to be a potent mix, leading to a raft of short-covering in not only the Aussie dollar but also the Kiwi, British pound and Chinese yuan.

Here’s the scoreboard at 8am in Sydney on Friday.

AUD/USD 0.7205 , 0.0132 , 1.87%
AUD/JPY 81.2 , 1.32 , 1.65%
AUD/CNH 4.9832 , 0.051 , 1.03%
AUD/EUR 0.6315 , 0.0063 , 1.01%
AUD/GBP 0.5543 , 0.0003 , 0.05%
AUD/NZD 1.0822 , -0.0028 , -0.26%
AUD/CAD 0.9428 , 0.0125 , 1.34%

After opening the session at .7073, the AUD/USD rally kicked off following the release of Australia’s international trade report for September which revealed a massive $3 billion surplus, near double the $1.8 billion level expected.

That saw the AUD/USD spring back above the .7100 level, initiating a surge in short-covering from traders given bearish bets against the Aussie hit levels not seen in several years in October.

Interestingly, the New Zealand dollar appeared to benefit more from the trade report than the Aussie dollar itself. That too likely reflected short-covering given bearish bets against the Kiwi were even more extreme than in the Aussie.

Positive headlines in relation to Brexit negotiations during the Asian session also helped to propel the British pound higher, helping to drag the euro along with the ride, contributing to further losses in the US dollar index.

After breaking above .7159 in European trade, the high struck in the middle of the October, the AUD/USD went on with the move in the second half of the session, jumping back above .7200 for the first time since early October.

Investing.comAUD/USD Hourly Chart

Signs of a thawing in trade tensions between the United States and China helped to lift stocks and the Chinese yuan, and with it the Aussie dollar.

And while US construction and labour market data released during the session was strong, the ISM’s manufacturing PMI dipped more-than-expected in October, driven in part by a sharp slowdown in new order growth which slipped to the lowest level since early 2017.

As a leading indicator on economic activity, this further reinforced the view that the US economy is starting to lose some momentum. With the October US non-farm payrolls report out on Friday, and with the US midterm elections held next Tuesday, this contributed to a wave of profit-taking in the greenback.

As pointed out by Robert Rennie, Head of Financial Market Strategy at Westpac Bank, on Twitter, this has seen the AUD/USD break out of the downtrend it has been stuck in since the early parts of the year.

The AUD/USD has now rallied 2.66% in less than a week.

Turning to the session ahead, whether the rally in the Australian dollar can extend further will likely be determined by a raft of major data releases scheduled during the session.

In Australia, markets will receive retail sales figures for September, including quarterly retail sales volumes that will feed directly into next month’s Q3 GDP report.

This 10-second guide has more on what to expect. The release will arrive at 11.30am AEDT.

Q3 producer price inflation data will also be released in Australia, although this release tends to be ignored by traders.

There’s no other major releases scheduled in Asia, likely ensuring movements in Chinese financial markets, especially the yuan, will be highly influential on the performance of the Australia dollar.

Later in the day, the main highlight comes from the US with the release of US non-farm payrolls for October.

“The median estimate shows the consensus is looking for a 200,000 print tonight,” says Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“The unemployment rate is seen unchanged at 3.7% and, although the monthly average hourly earnings reading is expected to ease to 0.2% from 0.3% in September, the year-on-year reading is expected to rise to 3.1% from 2.8%.

“We think the latter has the potential to move the market — a year-on-year print above 3% has not been seen since April 2009.”

The payrolls report will arrive at 11.30pm AEDT.

Outside of that release, other highlights during the session include German import prices, Eurozone manufacturing PMI, UK construction PMI, trade and unemployment data from Canada along with trade, factory orders and Empire State manufacturing index from the United States.

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