AUD/USD: Australian dollar surged on short covering amid recovery in China market

• AUD slumped last week on dovish hold by the Reserve Bank of Australia (RBA) and muted Australian economic data.
• China deleveraging and slowdown stories have also affected the AUD.

AUD/USD is trading around 0.7828 surging almost 0.4% during the New York morning trading session and off the session low of 0.7809 on short covering ahead of key Australian economic data (job report) as well as US CPI report. The Reserve Bank of Australia assistant governor will also speak on Tuesday, February 13.

AUD/USD made a multi-month low of 0.7759 last Friday on a dovish stance of the RBA coupled with muted retail sales and trade balance reports. Contrary to earlier expectations, the RBA was quite dovish on inflation & GDP on the relative strength of the AUD and emphasized their neutral policy bias. Australia is an export-oriented and a strong AUD is not good for the economy.

The market is now pricing the RBA rate hike in late 2018, whereas before RBA, the market was pricing it in 2018.

The RBA felt that although non-mining investments are improving, subdued household consumption is a key headwind for the Australian economy. In that sense, AUD trader may now focus on AU job data and wage growth this week.

Apart from a dovish RBA, AUD is also under pressure on China slowdown story and plunge in Oil last week along with some weakness in metals. China being the largest trading partner of Australia, AUD may be now a proxy for the Chinese economy and the market. Today’s rebound in China stock market on suspected government intervention and signs of strong credit growth may have thus also helped the AUD sentiment