OANDA FX VIEW: Aussie dollar could face storm clouds this week

“While the fundamental economic landscape in early 2016 has been supportive for the Aussie, there’s a flurry of high-risk events this week,” said Stephen Innes, senior trader at FX and CFD broker OANDA Australia and Asia Pacific.

One of these is the closely watched Chinese PMI data, due for release this week.

“The PMI reading will likely point to further contraction highlighting softness in the sector due to China’s economic slowdown,” Innes said.

Last month the Index collapsed to 49 and analysts are looking for another low number with current estimates around the 49.3.

According to Innes, “While the anticipated soft PMI prints will likely keep the ASEAN currencies on the defensive this week, a miss on the downside expectations should weigh negatively on the Aussie,”

“A drop in the manufacturing index would have negative consequences for commodity prices,” Innes said.

Aussie currency traders are also keeping an eye on global central banks and their easing monetary policy, with the US Federal Reserve indicating a ‘lower for longer interest rate’, which means it is in no hurry to raise interest rates.

“Aussie traders will be extremely focused to see whether US Fed chair Janet Yellen leaves the door open to an April rate hike, or sticks to her post FOMC mantra,”

“I suspect it’s doubtful she will contradict last week’s Fed statement, so if that plays out, we could see additional pressure on the Aussie dollar carry trade after Yellen's Tuesday's speech,” Innes said.

The other potential data point minefield for the Aussie dollar is the very high-risk US non-farm data due for release on Friday.

“Non-farm payrolls growth has been averaging a solid 228 k over the past three months, and while wages capitulated last month, the participation rate has been steady,”

“With recent Fed speak emphasis on payrolls data, any significant delta from the expected 205K mainly a fall towards the 150K level should send the USD into a tailspin,”

 “So fasten your seat belts, we could be in for a wild ride this week,” Innes said.

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