After more than a month of relative stability and strength, this week is shaping up as a test of the Australian dollar's resilience as Reserve Bank of Australia commentary and third-quarter national accounts provide further clues to the currency's true worth.
Although the local currency has lost more than 35 per cent against the greenback since the peak of the commodities boom in mid-2011, and 21.5 per cent on a trade-weighted basis over the same period, it has recently diverged from both these pairs, and from ongoing softness in the price of iron ore, Australia's chief merchandise export.
Analysts have attributed this departure from convention to myriad factors, including Australian bonds' attractiveness to yield seekers, US vacillation on interest rates, the RBA's reluctance to ease monetary policy further and buying to hedge against or minimise losses on bets the currency will continue to decline.
The case for a reversal of this recent strength was bolstered last week as the price of iron ore fell to a six-year low of $US43.89 a tonne, compared with almost $US120 about 18 months ago.
A shock 9 per cent contraction in third-quarter capital expenditure on Thursday should also have hit the Aussie. However, after an initial 0.4 per cent dive to US72.20¢, it crept back up to US72.50¢ in late local trade.
Reaction to Monday's gross domestic product "partials", which include company profits and inventories, was also muted. The Aussie barely reacted to the slightly better than expected data to fetch US71.71¢ in late morning trade.
In late Monday afternoon trade, the Australian dollar was worth US71.92¢.
Analysts said the next test would be Tuesday's RBA board meeting. The central bank was certain to hold the cash rate at 2 per cent.
"Each and every member of the consensus of economists expects no change [on Tuesday], so the focus will be on the tone of the statement; we expect the implied easing bias to stay," JPMorgan's chief economist for Australia, Stephen Walters, said.
"Domestic activity indicators have broadly improved over the last few months, such that while low inflation gives the RBA scope to ease if needed, the board will probably not see a requirement for lower rates at this point."
However, he expected several factors to stop the RBA painting a completely rosy outlook.
"First, last week's capital spending data were very poor, and introduce a little doubt as to the resilience of the rotation towards stronger outcomes on the non-mining economy," he said.
"Second, the signal from commodity prices and Asian data remains sobering.
"Other things being equal, the Australian dollar needs to be lower if trading partner growth and the terms of trade are yet to level out."
Stephen Innes, senior trader at foreign exchange firm OANDA Australia and Asia Pacific, said currency traders would be "fastening their seatbelt" for the rest of the week.
"We should be in for a very bumpy ride over the next five days as we have one of the busiest high-risk economic calendars in some time," he said.
"The RBA cash rate is the primary focus and while the market is unanimously expecting rates to remain [on] hold, the economic calendar is jam-packed with high-risk Aussie data events including GDP, trade balance and retail sales. That should keep local traders hopping.
"The Aussie has continued to struggle in the wake of last week's dismal capex print and with commodity markets continuing to sour, traders are again looking to take on some downside risk after the Aussie dollar momentum ran into a brick wall towards the end of last week."
Meanwhile, US markets would be keeping a close eye on the jobs data as well as any statement from US Fed Reserve chairwoman Janet Yellen regarding the anticipated December rates lift-off, Mr Innes said.
In Europe, the European Central Bank would take centre stage as the market awaited confirmation of the aggressive quantitative easing expansion the central bank had been hinting at for the past month, he said.
