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The Australian dollar looks set to continue its strong rally going into next week's key midterm elections in the US
The Aussie recorded its biggest daily gain since March 15, 2017 on Thursday, triggered by better-than-expected trade figures for September.
Australia's trade surplus for the month surged to $ 3 billion on the back of strong resources exports and a fall Australia dollar face up foreign demand.
The Aussie's rally was aided by a weaker US dollar following Thursday's soft economic data. The US ISM manufacturing index fell 2.1 points in October to 57.7, below market expectation of 59.0.
NAB senior FX strategist Rodrigo Catril said the data represented a key turning point in the US economy's growth.
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"It's important because there are signs of global growth slowdown," he said. "Now we're seeing the first signs that the US is slowing too."
The Aussie, which had been trading at US70.72 on Thursday morning, soared more than 1.9 per cent to a high of US72.13 on Friday morning.
"We have finally had a break and it was very worthwhile action," said Westpac senior currency strategist Sean Callow.
The dollar's strong rally was broken Friday's disappointing retail sales figures. Retail sales for September rose just 0.2 per cent, below market expectations of 0.3 per cent gain.
"It was disappointing," said Westpac's Mr Callow. "Food retail rose 0.4 which is not a great rise, especially when you have fallen into discretionary spending.
"The Aussie has been quite resilient in response. It could be a bit of a stall in the rally but it was not a killer blow."
Mr Callow said that after this week's figures, the Aussie dollar would take its guidance from the US dollar with the country's mid-term elections set to dominate sentiment.
Dollar outlook
Analysts are forecasting the dollar will maintain its upwards momentum as speculators headed for the exits after breaking through key technical levels.
"The speculative positioning of these positions is quite extreme," NAB's Mr Catril said. "Those who have been betting on the Aussie going exiting those positions and you've seen the same thing with the Kiwi."
He said the US Labor Department's monthly jobs report, due out on Friday morning in the US, would be another key event for the Aussie dollar.
"There's a lot of feeling, we need to see the print tonight," he said on Friday. "The key is the hourly earnings." Last year's prints were so bad that the market is right, we'll see a significant jump. "
For Westpac's Mr Callow said the key remains the US mid-term, even as the Australian dollar appeared to be returning to fair value.
"We thought the Aussie had been rather oversold so we would see the risks to the fundamentally upside," he said. "We think it makes sense to be closer to US73 than US $ 71. But we just do not know how America will vote and how much it will impact the Fed's pricing for December."
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