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The Aussie dollar came out on top as the major currency to rule them all this week, mainly thanks to improving global risk sentiment and counter currency drivers.

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

Major Market Drivers for the Australian Dollar

Global risk sentiment was a big driver for the Aussie this week, and for a broad rundown of what drove global risk sentiment, check out my review of this week’s risk sentiment drivers and market behavior in my Japanese yen weekly review here.

In short, we saw early risk-off sentiment to start the week (and likely the reason we saw the Australian dollar under perform the safe haven currencies like USD, JPY, & CHF), but traders turned bullish from Wednesday on a slew of developments including a dovish FOMC statement and improving U.S.-China trade talk sentiment from U.S. Treasury Secratary Mnuchin. Positive global sentiment to close the week is likely why we saw the Aussie’s performance against the safe havens outshine its performance against the high-yielders (NZD and CAD), and end up positive against all of the majors overall.

There also seemed to be uniform price action among Aussie pairs off of Australian and Chinese specific data events.  First, we saw a uniform bullish move after Australian CPI data, which came in at 0.5% to beat the forecast of 0.4% in the previous month.  The year-over-year number came in at 1.8%, slightly below the RBA’s target band of 2% – 3%, so it wasn’t soft enough to throw rate cuts on the table, which is arguably the reason why we saw the pop higher in the Aussie.

Second, the Aussie saw a uniform rally in the Thursday session, not only helped by positive risk sentiment, but also possibly on slightly improved Chinese manufacturing and services sentiment data versus the December numbers. They were actually mixed  with the manufacturing read showing contractionary conditions and services showing expansionary conditions, but they both came in higher than the previous month reads.

Finally, there was a short period of selling pressure going into the Friday session, likely due to another read on Chinese manufacturing conditions, the Caixin manufacturing PMI survey. This came in at 48.3, down from the 49.7 in December, not only worse-than-expected but also in contractionary territory. This is likely the reason we saw weakness in the Aussie, especially as the Australian manufacturing PMI number was release around the same time at 52.5, beating the previous read of 50.0.

Australia Headlines and Economic data