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Mixed but negative week for Aussie pairs after construction data outweighs positive global risk sentiment this week.

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

Australia Headlines and Economic data

Major Market Drivers for the Australian Dollar

As usual, global risk sentiment was likely a contributing factor to the Aussie’s relative performance this week, and for a quick rundown of what drove global risk sentiment, check out my review of this week’s risk sentiment drivers and broad market behavior in my Japanese yen weekly review here.

In short, risk sentiment looked like the main driver for Aussie price action in the first half of the week with positive vibes coming from the removal of the U.S. trade tariff deadline on Chinese goods and possibly on the reduced probability of a “no-deal” Brexit scenario. This likely the reason why we saw the Aussie out perform more against the safe haven currencies than its out performance against the Kiwi and the aforementioned Brexit update induced British pound rally.

The positive Aussie sentiment changed going into the Wednesday Asia trading session after Australia released a surprisingly weak construction spending update (down -3.1% in the December quarter), which brought the focus back for Aussie traders to the weakening Australian economy and the Reserve Bank of Australia’s concerns with the housing market.

The Aussie was never able to recover after that report, eventually falling into the red against most of the majors by Thursday’s trading session. We did see broad uniform weakness from Aussie pairs around this time, despite a report on manufacturing showing further recovery in February. It’s possible that the Aussie took a hit along with a brief turn in risk sentiment, possibly on the geopolitical headlines of President Trump cutting his meeting short with Kim Jong-Un, and/or the military actions between India and Pakistan. Or more likely, European traders priced in the weak Chinese government PMI report, which showed a contractionary reading or 49.2–the weakest level since February 2016.

On Friday, it looks like Aussie bears lightened up on the pressure, possibly on the better-than-expected Caixin manufacturing PMI report (49.9 vs. 48.5 in January). The improvement showed in the private survey contradicted the government PMI report; we don’t know who is right but apparently traders put more weight on the private report based on the quick bullish reaction.

Actually, Aussie pairs chopped around after the Caixin PMI release but eventually found buying support during the Friday London session, possibly with the help of the latest update on commodity prices, showing a 4.8% increase in February. Or it’s likely a return in focus to the risk-on vibes that helped pushed equity markets and bond yields higher in the early U.S. trading session before weak U.S. data turned traders sour on risk assets into the weekend, and the Aussie mostly weaker against the other major currencies.