This was published 9 years ago
Australian dollar tops US95c but staying power yet to be tested
By Jessica Sier and Bianca Hartge-Hazelman
The Australian dollar may have broken above US95¢ for the first time in eight months but its ability to do it again will depend on whether speeches by the Reserve Bank and Federal Reserve keep investors hungry for risk taking.
On Tuesday night, the dollar reached a resistance point of US94.65¢ and traded above US95¢, before retreating early on Wednesday.
The currency then took a further tumble on disappointing trade data, which showed the extent to which weaker iron ore prices are hurting export earnings. By the close of local trading the dollar was buying US94.57¢.
Westpac currency strategist Sean Callow said given the market mood, with strength across Asia and record highs in US equities, there may be further highs in the Australian dollar. “It will be very interesting to hear [Reserve Bank] governor Glenn Stevens’ thoughts on this tomorrow,” he said.
Westpac has a view that the currency could reach parity against the US dollar early next year as Australian exports start to outpace imports due to the significant number of liquefied natural gas projects coming online later this year.
Indeed, in the trade figures released on Wednesday, the Australian Bureau of Statistics reported exports fell 5 per cent in May, most likely nudged lower by falling mining exports.
“A surprise to the trade deficit and a previous downward revision to the last month has quite rightly knocked the Aussie down because the big picture has changed a little bit,” Commonwealth Bank chief currency strategist Richard Grace said.
CBA predicts the currency will also reach parity against the greenback in the next 12 months.
But some analysts are doubtful that the dollar will break back above US95¢ this week.
“We’ll be listening very closely for any response by Janet Yellen to the statement by the Bank for International Settlements,” CMC Markets' chief market strategist, Michael McCarthy, said.
“It’s quite clear that Yellen is at the dovish end of the spectrum and I would imagine there would have been a lot of behind the scenes discussions between the Fed and the BIS in the lead-up to the release of that report.
“I suspect we might hear a bit of a moderation of the dovish tone we’ve been hearing from her. That might lead to a stronger US dollar and the potential for a lower Aussie against it,” he said.
“Generally when we get a break like that we tend to get a decent move, but I think this was really a false break.”
Positive momentum from weaker US economic data and the Reserve Bank keeping rates on hold at 2.5 per cent on Tuesday had underpinned gains in the local currency earlier in the week.
RBA assistant governor, financial markets, Guy Debelle, is scheduled to speak in London on Wednesday and may present offshore investors with a softer outlook for the Australian economy. If that happens, it could raise expectations that rates will remain on hold for a lot longer than many economists expect.
Elsewhere, the market is also waiting for the release of important US labour figures on Thursday.
“If the US payroll numbers surprises to the downside, we might see some temporary softness in the US dollar and help lift the Aussie dollar up to those US95¢ levels,” Mr Grace said.
“But I think it may just take a little bit longer than anticipated to get back up to US95¢, now that we’ve got this new trade information,” he said.