The Australian dollar has gone into reverse

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The Australian dollar endured a topsy-turvy session on Monday, initially rising before retracing that move and more in the latter parts of trade.

Here’s the scoreboard just before 7am AEST on Tuesday:

AUD/USD 0.7849 , -0.004 , -0.51%
AUD/JPY 86.07 , -0.02 , -0.02%
AUD/CNH 5.2505 , -0.0097 , -0.18%
AUD/EUR 0.6661 , -0.0016 , -0.24%
AUD/GBP 0.6053 , -0.0015 , -0.25%
AUD/NZD 1.0767 , -0.0003 , -0.03%
AUD/CAD 0.9989 , -0.0018 , -0.18%

After hitting a high of .7919 in early trade, the AUD/USD reversed hard midway through the session, weighed down by a disappointing batch of economic data from China for July.

From there, the Aussie continued to soften in European and US trade, weighed down by a combination of stretched long positioning, weaker commodity prices and a renewed bout of US dollar strength.

The dollar was supported by hawkish remarks from New York Federal Reserve president Bill Dudley during the US session.

Dudley said that he favours another rate rise this year if the economy evolves as he expects, putting him at odds with several other FOMC members who have expressed doubts over the need for a further interest rate this year given persistent weakness in inflationary pressures.

“If it evolves in line with my expectation… I would be in favour of doing another rate hike later this year,” he said.

That provided the US dollar a further boost after gaining earlier in the session on a perceived reduction in geopolitical concerns surrounding North Korea. And, as seen in the AUD/USD daily chart below, it saw the Aussie fall back towards the lows seen late last week.

AUD/USD Hourly Chart

After being dominated by Chinese economic data on Monday, the Aussie’s movements on Tuesday are likely to be dictated by the release of the minutes of the Reserve Bank of Australia’s (RBA) August monetary policy meeting at 11.30am AEST.

While some think that the minutes will be a non-event, particularly as the RBA will be acutely aware not to deliver any surprises like it did in July, Greg Mckenna, chief market strategist at AxiTrader, suggests the Aussie is looking vulnerable ahead of this release.

“The Aussie is vulnerable because there is every chance the minutes of the RBA’s monthly meeting will reflect a discussion on the negative impact of the strong currency on the Australian economy,” he says.

“With positioning mega-long and most fundamental valuations suggesting the AUD/USD is fully priced, it won’t take much for the Aussie to trade down and through last week’s lows to 78 cents — maybe lower — over the next week.”

Outside of the RBA minutes, markets will also receive the latest weekly ANZ-Roy Morgan Australian consumer confidence report at 9.30am AEST along with new motor vehicle sales at 11.30am AEST. Neither are likely to be market-moving.

Outside of those releases the Asian calendar is devoid of any first-tier releases on Tuesday.

Later in the session, the highlights include UK CPI, US retail sales and German Q2 GDP. Out of these releases, the US retail sales report appears most likely to generate volatility across currency markets.

Markets are looking for an increase in headline sales of 0.4% with core sales — those excluding auto sales — expected to grow by a smaller 0.3%. The retail control group, a figure that is closely correlated to household consumption in US GDP, is also tipped to rise by 0.4%.

The retail sales report will be released at 10.30pm AEST.

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