More depressing data from Australia increases the likelihood of yet another RBA rate cut, but this time, AUDUSD was bailed out by strong Chinese imports, and AUDUSD managed to hit fresh weekly highs overnight.

The Australian dollar (AUD) dipped on weaker-than-expected employment data, but then quickly recovered, causing AUDUSD to hit fresh weekly highs after Chinese trade data showed a significant pick-up in import demand. The data for July showed that Australia lost -10.K jobs in the month versus an expected 6.0K gain.

The labor data was disappointing on all fronts, as full-time employment contracted by -6.7K versus -4.4K expected, and part-time employment declined by -3.5K versus a prior gain of 14.8K. The unemployment rate dipped slightly, to 5.7% from 5.8%, but that was only because the participation rate declined as well, to 65.1 from 65.3.

Overall, this was just another in a series of depressing data points from down under that clearly showed conditions on the ground continue to deteriorate. If the employment situation in Australia does not improve, the prospects for yet another rate cut by the Reserve Bank of Australia (RBA) will increase markedly, and the Aussie is likely to feel further downside pressure.

This time, however, AUDUSD quickly shrugged off the dour labor news and rose through the .9050 level after Chinese trade data surprised the market. China reported a much-smaller-than-expected surplus of 17.82 billion versus 26.90 billion forecast, but investors were buoyed by the surprisingly robust jump in imports, which increased by 10.9% versus an expected gain of only 1%.

As the Chinese economy begins its long transition from production-led growth to consumption-led growth, the import numbers take on a much greater importance, and today's data raised hopes that demand in China may not be as fragile as initially thought.

Of course, many analysts remain skeptical of Chinese data, but tomorrow's torrent of releases could confirm today's report and provide further support for the Aussie.

EUR/USD Gears up for a Challenge

Elsewhere, price action was very quiet, with no major releases out of Europe. German trade balance beat slightly to the upside by printing at 15.7 billion vs. 15.2 billion projected, but despite clear evidence of a pick-up in Eurozone economic activity, the European Central Bank (ECB) reduced its estimates for growth in 2013 to -0.6% from -0.4% and lowered the 2014 projection to 0.9% from 1.0%.

The euro (EUR) however, ignored the downgrade, as investors are becoming more convinced about the rebound in the region, and EURUSD climbed through the 1.3350 level as it now gears up to challenge the key 1.3415 swing high from several months back.

The Lone US Data Point for Today

In North America today, the economic calendar remains barren with only jobless claims on the docket. Price action is likely to be subdued while we are deep in the dog days of summer and many global investors are on the beaches instead of at their trading desks.

By Boris Schlossberg of BK Asset Management