The Australian was on the defensive against the US dollar on Monday amid worries about the health of the global economy and sovereign risk contagion in the euro zone. The Aussie hovered around $0.8660 for much of the session, above a four-month low of $0.8576 hit on Friday but off an early $0.8724 high. Offers were seen around $0.8735, with support under $0.8640.
Aussie also bounced somewhat to 77.50 yen, having slumped to seven-month lows around 76.20 at one point on Friday as the yen gained from safe-haven flows. Flight from risk had also benefited the dollar, which hovered near a one-year high against the euro.
The global focus remained very much on European Union sovereign debt, with the G7 meeting ending with much vocal support for Greece but no concrete action. Markets will be watching spreads on Greece, Portugal and Spanish debt this week. John Horner, foreign exchange strategist at Deutsche Bank, doesn't see a bounce soon for the Aussie as many of the headwinds remain in place.
"They concern policy tightening in China, signs of sovereign issues spreading to more widespread risk aversion and a generalised US dollar strength," Horner said. He forecast the Aussie at 78 cents by year-end. Still, longer-term Aussie sentiment could be helped by Chinese and Indian demand for Australian resources which are expected to boost the country's terms of trade this year. Just over the weekend, an Australian miner signed a deal to sell $60 billion of coal to China over a 20-year period.
The domestic focus this week will be on jobs data on Thursday where a solid rise of 15,000 is expected in employment, with the jobless rate edging up slightly to 5.6 percent. A strong report would revive the prospect of a rate rise in March, after the Reserve Bank of Australia (RBA) surprised by skipping a hike last week.
Markets have sharply cut back the probability of a hike in March given the ructions in global markets and now see only a one-in-five chance of a hike next month. Aussie bond futures were mixed with the curve flattening. Three-year bond futures added 0.030 points to 95.290, and ten-year futures lost 0.005 points to 94.540.