Dollar rises but betting on its future is only for the brave
The Aussie's rally began on Tuesday when the RBA decided to keep interest rates on hold and made no mention of another possible cut in the months ahead.
"Markets have this funny thing that if the RBA is not easing, then they must be hiking," NAB currency strategist Emma Lawson said.
"[Markets think] they're not likely to keep rates on hold for very long. They took the [RBA's] relatively unchanged statement on Tuesday that they have done [with] easing."
The Aussie was strengthened further on Wednesday when quarterly GDP figures came in slightly higher than expected (0.6 per cent versus 0.5 per cent) and hit a high of US91.87¢ in overnight trade.
But the bounce could be nearing an empty tank of fuel, analysts say.
Westpac currency strategist Sean Callow said it would be "very brave" to take an aggressive view on the Aussie before the release of US payroll data on Friday, which could dictate the fate of the Federal Reserve's $US85 billion-a-month stimulus program - the tapering of which is widely tipped to begin this month.
But Mr Callow said the US employment data, which is difficult to forecast, could change that prediction.
"Who knows what it's going to be? Everybody has trouble forecasting US employment," he said.
"If it's unexpectedly weak, it calls into question the whole argument whether the Fed will start reducing stimulus. If it's strong, then the US dollar will probably rise and the Aussie will come off, so we are getting to some pretty dangerous territory for Aussie traders."
The Australian dollar came under pressure during early trade on Thursday, falling about a quarter of a cent to US91.63¢ following the release of poor trade figures.
Australia's trade balance dived $765 million into the red in July. Analysts were expecting a modest surplus of $100 million after June's $243 million surplus.
The dollar was trading at US91.55¢ about 5pm.
ANZ currency strategist Andrew Salter said he believed the dollar could edge higher.
"We are starting to tell our clients from 92 through to 95 is [when] you should start positioning for longer-term depreciation in the currency," he said.
"There is quite a high degree of short positioning in the market, so the market is expecting the currency to go down when the information we have been getting is telling us it should go higher.
"That is challenging those short positions and a lot of investors are stopping out of them and in the process pushing the currency higher."
Mr Salter still expected some volatility and said it was hard to be precise about currency targets because it depended so much on global economic data and unpredictable events.
"But all that being said, the fundamentals for the world economy are slightly improving - that's a positive," he said.
"China's growth is appearing to [stabilise] ... and the short positioning in the currency is going to be impetus to get [the Aussie] up."
Frequently Asked Questions about this Article…
The Aussie rose after the Reserve Bank of Australia (RBA) kept interest rates on hold and did not mention further cuts, which markets interpreted as a less-easing stance. Quarterly GDP coming in slightly stronger than expected (0.6% v 0.5%) also helped push the currency to a high of around US91.87¢.
The article reports the Australian dollar rallied more than US2¢ during the week, reached about US91.87¢ in overnight trade, then slipped to roughly US91.55–91.63¢ after weaker trade figures were released.
NAB currency strategist Emma Lawson said markets often treat an RBA decision not to ease as though rates will be hiked, and that investors believed the central bank was unlikely to keep rates on hold for long. That changed market positioning and contributed to the Aussie’s rally.
Yes. Westpac strategist Sean Callow warned it would be 'very brave' to take an aggressive view before US payroll data, which could affect the Federal Reserve’s $US85 billion-a-month stimulus tapering plans. Analysts flagged that unpredictable US employment data and other global events could quickly reverse the move.
The US payroll report could influence whether the Fed begins tapering its stimulus. If payrolls are unexpectedly weak it could weaken the case for tapering; if strong, the US dollar would likely strengthen and the Australian dollar could fall, creating volatility for AUD holders and traders.
Poor trade data (a $765 million deficit in July versus an expected $100 million surplus) put the Australian dollar under pressure, causing it to fall about a quarter of a cent to around US91.63¢ in early trade.
ANZ strategist Andrew Salter noted there is a high degree of short positioning in the market. That short positioning can be challenged by positive data, forcing short-covering which pushes the currency higher; Salter also suggested 92–95¢ is a range to start thinking about longer-term depreciation positioning.
Investors should monitor RBA commentary and decisions, key domestic prints like GDP and trade figures, major US data such as payrolls (which affect Fed tapering), and market positioning trends—because these factors drove recent AUD moves and can create short-term volatility.
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