Softer greenback gives dollar a boost
In late Friday trading, the local unit was trading at US95.94¢, up from US94.77¢ on Thursday.
Speculation the US Federal Reserve will soon wind back its third round of bond purchases, known as quantitative easing, has caused the dollar to fall against the greenback in recent weeks.
However, expectations that the Fed will not has helped the Australian dollar rally.
Commonwealth Bank currency strategist Peter Dragicevich said the weaker US dollar had helped support the local currency.
"The Aussie has drifted a little bit lower but it has still managed to keep most of [Thursday's] gains so we've ended the week higher than where we started," he said.
A lack of local economic data and volatility on Japanese financial markets has moved currencies around. The strength of the local currency has been underpinned by a softer US currency.
"A lot of people have pared back their expectations for quantitative easing in the US so that has weakened the US dollar and supported the Aussie," Mr Dragicevich said.
On Friday night, Australian time, the US will release consumer confidence figures for June and the producer price index - the price of goods at the farm or factory gate.
Meanwhile, bond futures prices weakened slightly as investors anticipate a slow end to quantitative easing ahead of thew Fed's meeting next week. The June 10-year bond futures contract was trading at 96.630 (implying a yield of 3.370 per cent), up from 96.605 (3.395 per cent) on Thursday. The June three-year contract was at 97.420 (2.680 per cent), down from 97.425 (2.575 per cent).
Commonwealth Bank head interest rate strategist Philip Brown said the weakness was due to technical readjustment, with three-year-bonds being sold off.
Mr Brown said the Fed was trying to remind the market that it will start tapering its quantitative easing program.
"They seem to have done that fairly effectively and the market seems to have taken that view and decided they're going to do that immediately."
Frequently Asked Questions about this Article…
The article says the AUD rallied because the US dollar weakened amid speculation the US Federal Reserve will wind back its third round of bond purchases (quantitative easing). A softer US dollar supported the Aussie, with the local unit trading around US95.94¢ in late Friday trade, up from US94.77¢ on Thursday.
Expectations that the Fed will scale back (taper) quantitative easing have reduced demand for the US dollar, which in turn has supported the Australian dollar. Commonwealth Bank strategists in the article noted that pared-back expectations for QE have weakened the US dollar and helped the Aussie rally.
The article highlights two US releases to watch: consumer confidence for June and the producer price index (PPI). Both data points can influence Fed expectations and US dollar strength, which often flows through to AUD moves.
Bond futures prices were described as weakening slightly ahead of the Fed meeting. The June 10‑year bond futures contract was trading at 96.630 (implying a yield of 3.370%), up from 96.605 (3.395%) on Thursday; the June three‑year contract was at 97.420 (2.680%), down from 97.425 (2.575%). Changes in bond futures and yields matter because they reflect market views on future interest rates and Fed policy, which affect currency and fixed‑income markets.
Peter Dragicevich said the weaker US dollar had helped support the Australian dollar. He noted the Aussie had drifted a little lower but still kept most of Thursday's gains, ending the week higher than where it started.
Philip Brown said the weakness in bond futures was due to a technical readjustment, with three‑year bonds being sold off. He also said the Fed appeared to be reminding the market it will start tapering its quantitative easing program, and the market seemed to have taken that view.
The article notes that volatility on Asian markets, particularly Japanese financial markets, has moved currencies around. While volatility can be unsettling, the Aussie still managed to hold most of its gains—investors may want to monitor volatility but remember it is one of several factors influencing the AUD.
Based on the article, everyday investors should watch US Fed communication and QE expectations, key US data releases (like consumer confidence and PPI), bond futures and yields, and regional market volatility (for example in Japan). These factors were cited as influencing the AUD's recent moves.
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