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AUD/USD broke higher out of its trading range on Friday. Stronger equities and the potential for an imminent RBA rate hike were responsible for this. But local data out this week could upset this move. The RBA is concerned about economy's ability to hold up with the decline in fiscal stimulus (by about 25%) in 2H 2009. Retail sales, housing finance and employment data released this week will give an idea of how the economy is holding up with the drop off in fiscal stimulus. Weaker outcomes in the retail sales and labour market data would lower expectations of an October rate hike and weigh on AUD.

Technicals continue to show AUD/USD as undervalued however, so traders prefer selling AUD against the crosses, in particular the NZD. The RBNZ is widely expected to keep rates on hold this week, but the risk is that it could shift its rhetoric away from pointing to potential for further rate cuts and give the NZD a boost. The local data have been improving and dairy auction prices have recorded two very strong increases in a row. This is likely to lead to AUD/NZD downside.