Australian dollar bolstered by US action in Iraq

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Australian dollar bolstered by US action in Iraq

By Max Mason
Updated

Geopolitical tensions surrounding the US bombing of Iraqi separatists have helped the Australian dollar stabilise, as investors turn to the currency for safe haven.

The Aussie was little-moved on Monday, edging just 0.1 per cent higher to US92.82¢.

On Friday, the dollar had been trending down following poorer-than-expected local jobs numbers and the announcement that Russian troops were moving away from the Ukraine boarder, but events in Iraq once against raised investor fears.

On Friday (AEST), US President Barack Obama announced that US would carry out air strikes, which began on Saturday.

“In the absence of macro-economic data and directionality, we’re being driven by the geopolitical news flow,” NAB senior currency strategist Emma Lawson said.

“There will be a lot of focus on that and it may allow the Aussie to stablise and possibly regain some of the losses seen over the prior week.”

However, the local currency’s long-term strength will rely upon the US economy and central bank, rather than geopolitical events.

Positive economic data from the world’s largest economy is pressuring the Australian dollar, and markets are beginning to think about the end of the US Fed’s massive stimulus program, which will likely end in October, as well as a move up in US interest rates from near zero.

The Jackson Hole Economic Policy Symposium, beginning 21 August, ranks as the next main event from global currency markets, Ms Lawson said.

The annual conference hosted in Kansas will see the US Federal Reserve come together with policy experts and academics to discuss emerging issues and economic policy.

“Even if it not the FOMC, it’s the US macro-economic data that is the most important player here,” Ms Lawson said.

Ms Lawson said markets may begin pricing a move in interest rates into currency markets.

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