The dollar recovered from its losses earlier in the morning following a stronger than expected US manufacturing and housing reports that prompted traders to send the riskier currencies higher. US equities were unable to sustain earlier gains, teetering between positive and negative territory throughout the session.

The October manufacturing ISM report sharply beat estimates, improving to 55.7 and outpacing calls for an improvement to 53.0 from 52.6 in September. The employment index jumped to 53.1 from 46.2 a month earlier, while the new orders component declined to 58.5 from 60.8. The report also said that new orders, production and employment are growing while inventories were contracting and supplier deliveries were slower.

In the coming week, traders will look ahead to Friday's labor report, with the unemployment rate expected to continue creeping higher to 9.9% in October from 9.8% in September. Meanwhile, the non-farm payrolls are estimated to reveal a loss of 175k jobs compared with a loss of 263k jobs previously.

Aussie Advances Ahead of RBA

The Australian dollar rallied overnight against its US counterpart, recovering somewhat from last week's slide and climbing back over the 0.91-figure earlier. With the Reserve Bank of Australia slated to announce the decision from its monetary policy early in the Tuesday session, traders have been pricing in a 25-basis point rate hike from the RBA to 3.50% thereby pushing the Aussie higher.

In the Government's mid-year outlook, Australia's economic outlook was upgraded, lowering its estimates for unemployment to peak at 6.75% versus the previous 8.5% forecast. Also, the report highlighted an improvement in the Government's forecast for economic growth for the year ending June 2010 at 1.5%, versus a 0.5% contraction estimated 6-moths ago.

AUDUSD has since retreated back toward the 0.90-figure with support seen at 0.8960, followed by 0.8940 and 0.89. Subsequent floors are eyed at 0.8870, backed by 0.8830 and 0.88. On the upside, resistance starts at 0.9050, followed by 0.91 and 0.9120. Additional ceilings will emerge at 0.9150, followed by 0.9180 and 0.92.