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- AUD slides into new week amid litany of risks and headwinds.

- U.S.-China trade war weighs, but jobs data is also a risk to AUD.

- Jobs disappointment could yield RBA rate cut as soon as June.

The Australian Dollar slipped into the new week close to the bottom of the G10 basket on Monday, with one eye on the latest wage and employment figures due out in the coming days and the other on a Reserve Bank of Australia (RBA) that left the Antipodean currency's detractors empty-handed on Friday.

Australia's Dollar weakened Monday amid high levels of concern in the market about the trajectory of U.S. and Chinese trade relations, which have turned for the worse ever since President Donald Trump decided last week to raise the tariff rate levied on some $200 bn of goods exported to America each year, from 10% to 25%.

I think that China felt they were being beaten so badly in the recent negotiation that they may as well wait around for the next election, 2020, to see if they could get lucky & have a Democrat win - in which case they would continue to rip-off the USA for $500 Billion a year....

— Donald J. Trump (@realDonaldTrump) May 11, 2019China has said it will retaliate and financial markets are now bracing to see exactly what shape that response will take, although some investors are still clinging to hopes that a severe escalation of the trade conflict can be avoided given Presidents Trump and Xi Jingping are set to meet on the sidelines of the June G20 summit in Osaka.

This matters for the Australian Dollar given how the currency is underwritten to a substantial extent by a gigantic commodity trade with China, which might suffer indirectly if the conflict between the world's two largest economies gets out of hand.

Such a thing would be certain to damage the outlook for global economic growth, hitting commodity prices in the process and reducing the value of Australia's export trade.

China is DREAMING that Sleepy Joe Biden, or any of the others, gets elected in 2020. They LOVE ripping off America!

— Donald J. Trump (@realDonaldTrump) May 12, 2019"The US Treasury may release its twice‑yearly report on the currency practices of US trading partners this week (day unknown)," says Kim Mundy, a strategist at Commonwealth Bank of Australia. "With market participants focused on US‑China trade tensions, any emphasis on China in the Treasury report may inject some volatility in markets, hurting CNH and AUD."

Above: Australian Dollar performance on Monday, relative to its G10 rivals.

President Trump said last week that he's set the ball rolling on a process that could ultimately result in another $325 bn of China's annual exports to U.S. being subjected to a blanket tariff of 25%, although a formal notification of this is yet to be made by the U.S. Trade Representative.

If the second and larger basket of goods becomes subject to tariffs then the U.S. will have imposed levies on all of China's annual exports to the U.S., although those tariff rates could still be increased at a later date as a means of placing additional pressure on the Chinese government.

"It’s property, not Cold War, that’s seen as truly existential by all Aussie politicians. The same is also true for the RBA, of course. Yet the local press are now asking if the Cold War might give the Reserve Bank cover to admit how utterly wrong they have been on everything else and cut. I wouldn’t put it past them. And I wouldn’t be long AUD either," says Michael Every, a strategist at Rabobank.

The U.S.-China trade conflict will remain an influential factor for the Australian Dollar, analysts say, but most important in the days ahead is the looming release of the first-quarter wage price index on Wednesday and Thursday's jobs and unemployment numbers, which will cover the month of April.

Consensus is looking for a 0.6% increase in the average wage packet during the first quarter to push the annualised rate of Australian pay growth up from 2.3% to 2.4%, although this will still be far below the 3% level that RBA have suggested is necessary to ensure inflation of 2% or more over the long-term.

"Given the RBA’s recent communications, downside surprises to the Australian labour market data this week will raise pricing for a rate cut as soon as June and push AUD lower. AUD can drop more than 1 US cent if the Australian labour data disappoints," warns CBA's Mundy.

Above: AUD/USD rate shown at daily intervals.

The Australian Dollar received a boost Friday when the May monetary policy statement from the Reserve Bank of Australia failed to validate earlier bets by the market that an RBA interest rate cut could come as soon as June.

New Zealand's central bank, which faces almost as many challenges as the RBA, took the plunge last week and cut its own cash rate to a new record low of 1.5% which has now brought it into line with Australia's rate.

That led markets to become more bullish in their bets that the RBA will follow suit imminently, but that idea was challenged rather than validated by Friday's statement on monetary policy. The RBA reiterated Friday that future interest rate policy will be dictated by developments in the labour market.

The RBA said Friday that an unemployment rate even lower than the current 5% will be necessary in order to get the wage growth that is required in order to inflation to pick up and then hold sustainably within the 2%-to-3% target band.

"Our AU economists argue markets will be very sensitive to downside surprises but we are unlikely to see enough at this stage to tip the RBA’s hand for June," says Elsa Lignos, head of FX strategy at RBC Capital Markets.

Above: Pound-to-Australian-Dollar rate shown at daily intervals.

Pricing in the interest rate derivative market implied on Monday, an RBA cash rate of 1.34% on June 04 and 1.24% on August 06. This means markets are confident a rate cut will have arrived by the time all is said and done at the RBA in August, but that they're less convinced that one will come before then.

Economic data, particularly that focused on the labour market, will drive those implied probabilities up and down ahead of the forthcoming meetings. And the Australian Dollar can be expected to fluctuate in line with the evolving outlook.

Both Commonwealth Bank and Westpac, two of Australia's largest banking firms, say the AUD/USD rate is likely to trade with a downward bias this week but that the exchange rate should fluctuate between 0.70 and 0.72 over three-month horizon. It was quoted at 0.6970 Monday.

Westpac forecasts the Pound-to-Australian-Dollar rate will rise and remain close to the 1.87 level until the end of June. It was quoted at 1.8658 Monday.

"Our base case of GBP/USD roughly range-bound in the low 1.30s and AUD/USD slipping back to around 0.70 implies AUD/GBP returns to the 0.5325/50 area, GBP/AUD to 1.8700/50 by end-June," says Sean Callow, a strategist at Westpac, in a recent note to clients.

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