AUD/USD Rally Meets DXY Support Ahead of Crucial Nonfarm Payrolls and ISM Reports

The Australian dollar has been on a four-week winning streak, benefiting from US dollar weakness following the FOMC meeting and coordinated yen intervention.

However, with the US dollar index testing a major support zone, the nonfarm payrolls and ISM reports due this week could provide fresh catalysts to extend its gains or potentially weigh on AUD/USD.

The main events of the week are the nonfarm payrolls and ISM data, which could help reshape Fed policy expectations following last week's decision to leave interest rates on hold. A strong upside surprise in these reports could lift the probability of a December hike above 50%, supporting the US dollar and weighing on AUD/USD.

AUD/USD remains most inversely correlated with the US dollar, but correlations are facing a DXY reality check. Gross shorts among large speculators have continued to trend higher, while gross longs among asset managers have gradually risen.