Aussie Rally Looks Like Its Over. By Nicholas Hastings

The Aussie is unlikely to resume its rally now.

The Australian currency spent most of June just bouncing around $0.80, having risen steadily from about $0.63 at the start of March.

But rather than being the 'pause that refreshes', the currency's uninspired performance during June is more likely to be the pause that signals the rally has run into trouble.

Rising doubts about the pace of the global recovery, worries that Chinese appetite for commodities might be waning and a possible slide in commodity prices themselves are all seen weighing on Aussie sentiment.

Sure, the Australian economy itself remains resilient. Retail sales data due later this week are expected to show at least a 0.5% rise last month as government cash grants and tax bonus payments helped to boost consumer activity.

This positive data will certainly help to ensure that the Aussie doesn't face any serious sell off.

However, Australian trade figures, also due this week, could tell a somewhat different story.

The currency strategy team at Barclays Capital points to the downside risks to forecasts for a AUD0.125 billion trade deficit due to the decline in bulk iron ore and coal contract prices and a slowing in Chinese stockpiling.

The prospects for China are certainly a key element in tracking the Aussie.

News that the country will stop accumulating metals for its strategic reserves immediately knocked the Australian currency lower on Monday, especially as the news undermined the price of commodities in general.

However, its is the waning outlook for the global economy that will also be discouraging Aussie bulls from buying more at this stage. As investors question the health of the so-called 'green shoots' of recovery, their appetite for risk has declined, putting currencies such as the Aussie more at risk.

The Barclays strategists may be optimistic about the Australian currency's performance longer term, given its underlying economic strength, but even they warn of the near-term risks.

"We think that more confirmation from the global economic data of the green shoots hypothesis is needed before the Australian dollar breaks out of its $0.78-0.82 trading range," they said.

Early Tuesday, a rise in global risk appetite helped to lift the Aussie a little. By 0645 GMT, it was up at $0.8136 from $0.8081 late on Monday in New York, according to EBS.

The improved mood -reflected in gains in both the U.S. and Japanese equity markets -also lifted the euro, which rose to $1.4137 from $1.4077 and kept it steady at Y135.21 from Y135.22.

The dollar was also down at Y95.60 from Y96.04 as the yen was lifted by data showing that Japanese household spending rose by 0.3% in May, its first rise in 15 months.