The Australian dollar slipped on Monday after data showing soft retail sales, lacklustre labour demand and tame inflation added to expectations of an interest rate cut tomorrow.
The Aussie initially skidded a third of a cent to one-week lows of $uS1.0395 after retail sales came in flat for October versus an expected rise of 0.4 per cent.
Adding to the pain were a fall in local job advertisements for an eight month and a private gauge of inflation showing a tame reading.
But the Aussie later recovered some ground on further signs of stabilisation in the Chinese economy, Australia's top export market, with the final reading of HSBC PMI rising to 50.5 in November.
The data echoed an official PMI survey released over the weekend showing a rise to a seven-month high.
The upbeat numbers helped the Aussie to last trade at $US1.0413. It was still 0.1 per cent lower on the day, but not far from a two-month high of $US1.0491 touched last week.
Investors were now waiting for the Reserve Bank of Australia's (RBA) rate decision on Tuesday. Markets have narrowed the odds of further easing of a quarter point following the session's set of soft data.
"In the past month, there has been increasing pressure for the RBA to cut," said a trader at a European Bank in Singapore, seeing grey clouds from Europe, China and the domestic economy.
"There is more pain to come but with Australian yields around 3 per cent, the Aussie won't come off a cent," he said, adding a rate cut was already priced in.
Should the RBA ease, as he expects, he forecasts the local currency to trade in a range of $US1.0250-$US1.0450 this month.
"Its ability to hold above $US1.0400 will be reduced," the trader added.
Interbank futures now imply a four-in-five chance of an easing to 3 per cent, to match the record low reached during the global financial crisis, while swap markets put the probability at 90 per cent.
Markets are also leaning toward a further cut to 2.75 per cent some time next year.
Australian government bonds bounced with the three-year contract up 0.04 points to 97.430, well off multi-week lows hit last week. The 10-year contract added 0.03 points to 96.950, having recently fallen as low as 96.765.