This could be "a make or break week" for the Australian dollar with three major factors - the Federal Open Market Committee (FOMC) minutes, Chinese and Australian economic data - set to determine whether the embattled currency will break below the key $0.90 level or reverse its downtrend.
"This is a week when the Australian dollar could break $0.90 or squeeze higher," Kathy Lien, managing director at BK Asset Management wrote in a note late Monday, referring to the three risk events.
"[However] if this week's event risks give speculators any reason to take profit or reconsider their short positions, the liquidation could drive the Australian dollar above $0.92 and most likely $0.93," Lien said, noting that short Australian dollar positions are still near records highs.
The Aussie, which has depreciated 12.5 percent against the U.S. dollar over the past three months, has been hit by a slew of concerns including falling commodity prices, a slowdown in Australia's top trading partner China and the prospect of the U.S. Federal Reserve scaling back its extraordinary monetary support. The currency is now at its lowest level against the greenback in two and a half years.
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On the economic data front, China's June trade numbers due out on Wednesday, will be critical for the currency, she said.
"If the data meet or beat expectations, the Australian dollar bounce could turn into a stronger recovery. However, if export growth slows or worse, declines which we feel is more likely the Australian dollar could be in big trouble with 90 cents potentially coming under threat," she said.
The Aussie pared some losses against the U.S. dollar on Monday, rising to $0.9145 as the latter paused in its rally. However, the commodity currency resumed its downtrend on Tuesday, falling 0.4 percent in the Asian trading session.