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The Aussie was on track as the biggest gainer last week despite trading without a clear direction. Will it get the attention of bulls and bears this week?

U.S. government shutdown

With not a lot of data scheduled for printing in Australia AND China, it looks like Aussie traders will be at the mercy of overall risk appetite.

One thing Aussie junkies might not have fully priced in is the U.S. government shutdown that started this weekend. Early signs point to traders fleeing the Greenback and into gold, which had pushed the comdoll higher last week.

Will a prolonged shutdown lead to dollar weakness that would push the Aussie higher? Or will it lead to a more widespread risk aversion that would take a toll on higher-yielding currencies?

Last Week’s Price Review

As of 7 am GMT, the Aussie had a slight lead against the pound and is on track to finishing as the best-performing currency of the week.

Overlay of AUD Pairs & Gold (Black Line): 1-Hour Forex Chart
Overlay of AUD Pairs & Gold (Black Line): 1-Hour Forex Chart

However, the Aussie’s price action was a bit choppy and not really all that uniform. But then again, the same can be said of many currency pairs this week. Moreover, gold was down for the week but the Aussie is on course for the top spot.

Even so, there were signs that the Aussie tried to track gold prices. However, the prevalence of risk-taking this week likely sent more capital flows towards the higher-yielding Aussie, propping it up. It’s also possible that the Aussie’s price action was a bit messy because bulls wanted to take the Aussie higher due to the risk-on vibes while bears, who were looking at gold prices, were trying to kick the Aussie lower.

Aside from the risk-on vibes, some market analysts also suggest that the Aussie’s strength this past week has more to do with Greenback weakness. Basically, bullish pressure on AUD/USD pushed other Aussie pairs higher. And that does seem reasonable, given that AUD/USD was the best-performing Aussie pair.

Other reasons commonly cited for the Aussie’s strength include Australia’s December jobs report and China’s Q4 GDP report.

As marked in the overlay above, however, the Aussie tossed and turned before showing diverging price action when China’s GDP report was released, likely because the annual reading was better-than-expected (6.8% vs. 6.7% expected, 6.8% previous) but the quarter-on-quarter reading showed a slowdown for the second consecutive quarter (1.6% as expected vs. 1.8% previous).

As for Australia’s December jobs report, that caused the Aussie to jump higher as a knee-jerk reaction reaction, likely because jobs growth was better-than-expected (+34.7K vs. +13.0K to +15.0K expected).

However, bears quickly rushed in, likely because full-time jobs growth slowed and the majority of job gains in December came from part-time jobs. Moreover, the labor force participation rate improved from 65.5% to 65.7%, but the Australian economy wasn’t able to handle the influx of fresh and returning workers, causing the jobless rate to worsen from 5.4% to 5.5%.

Fortunately for the Aussie, the December jobs report was still pretty good overall, so much so that some market analysts said that the jobs report increased the odds that the RBA may be hiking within the year.

Moreover, gold was on the rise at the time and risk-taking was the dominant sentiment. And as such, follow-through selling was limited and the Aussie steadied on some pairs and even began to tilt higher on others.