IN CONTRAST to last week’s wild gyrations in the currency market, this week promises to be considerably more sedate. After the Fed announced $600bn in additional QE and the better than expected US jobs report, the FX market turned very bullish with traders ploughing into high-yield currencies like the Australian dollar. The Aussie set fresh post-float highs as it soared above parity. The combination of ultra-easy monetary policy from the Fed along with surprisingly robust data from the G10 economies has created a perfect environment for a rally in speculative assets.

This week, however, the risk trade will be seriously tested by Australian jobs data and key statistics from China. The Australian employment data, due tonight, may surprise to the upside given the strength in the recent services purchasing managers’ index. The market anticipates 20,000 new jobs and should the labour report prove stronger, then the Aussie rally could get another lift and challenge the US$1.0200 level.

However, the Aussie rally may be short lived as attention turns to Chinese industrial production and retail sales, which are due a few hours after the Australian data. For the risk trade to continue unabated, Chinese economic performance must maintain its double digit rate of growth. If Chinese data misses estimates, the Aussie is vulnerable to profit taking. The pair is now priced for perfection and any hint of a slowdown in Asia will spook late buyers into bailing out of it.

One interesting way to play this dynamic would be through the Aussie dollar-Canadian dollar pair based on the idea that North American growth may start to pick up just as growth in Asia begins to plateau. The Aussie has been so strong that it has risen to parity against the Loonie as well. If the Chinese news disappoints, Aussie-Loonie parity may not hold.

Boris Schlossberg and Kathy Lien are directors of currency research at GFT. Read commentary at or e-mail