Australia’s terms of trade has been a major strength for the Australian Dollar. The trade balance and building approvals data will be an important catalyst for the direction the Aussie takes during the Asian session. A positive surprise would have a positive impact on Australian equities, and can help boost the value of the AUD, while a negative surprise could help undermine the recent Aussie gains against the USD.

The Chinese government’s official version for the Manufacturing PMI is expected to show a month of contraction in January – albiet very slight. The risk dynamics at play are fairly straightforward. A weaker than expected reading will hurt equities, commodities, and higher yielding commodity and growth sensitive currencies like the Australia, New Zealand, and Canadian Dollars – though the AUD in particular. We preview the release and look at the AUD/USD.

In the upcoming Asian session the Australia CPI data will be key for the AUD/USD. If the market sees a weak print, and decides that the RBA is more likely to lower rates in the 1st half of the year, that would begin to be priced in as it gives the RBA more scope to loosen policy. If inflation comes in stronger than expected, then the RBA, despite what it sees from other economic indicators may be hesitant to pull the trigger on further rate cuts.

As we move through the early part of 2012 one of the key themes will be whether the RBA follows up the interest-rate cuts from the 4Q of 2011 with further rate cuts in the first half of this year. If there is another soft month of job growth – flat or another month of job losses – that will increase the pressure on the RBA to lower rates yet again. A stronger report on the other hand could help solidify the AUD/USD recent move above the 1.0380 area.

Australia’s economy is expected to show another solid quarter of growth with expectations of a 1.0% increase, but that will be slower than the pace seen in the 2nd quarter. But some dampened expectations after softer government spending figures may bias this release to the downside. The AUD therefore could be vulnerable to some selling pressures, especially following the RBA rate cut yesterday. However, if the release is better than expected, than can help the AUD to strengthen.

The RBA Meeting Minutes proved to be a bit more hawkish than expected, helping to boost the Australian Dollar. Coming into the report the expectation was that the RBA may be considering lowering interest rates again before the end of the year. The bank made the case for a “modest easing” which certainly doesn’t argue for another rate cut in the near term.

The Australian economy added 10,100 workers in October, right in line with economists expectations. The employment change is an important barometer of the Australian economy and seems to have stabilized the previous two months – with positive job growth averaging around 17,000. The RBA, after bringing rates down by 25 basis points, is expected to cut rates again before the year is out. Will the RBA meet the market’s expectation?