Australian Dollar Hits A To Two Year High
September 8th, 2017
The Australian dollar soared to a two-year high against the US dollar on Friday as ripples from an interest rate meeting in Europe spread through global currency markets.
The Aussie traded strongly against the US dollar from the start on Friday. At 1350 AEST on Friday, the Australian dollar was worth 81.11 US cents, up from 79.85 US cents on Thursday, a level it hasn't traded at since January 2015.
The surge in the Australian dollar followed a meeting on Thursday of policy makers at the European Central Bank, where ECB president Mario Draghi suggested that its bond-buying program would be only gradually tapered.
The euro hit a nine-day high above $US1.20 as Mr Draghi spoke, with investors piling into euro zone bonds on the prospect of continued ECB buying.
It seems the lack of detail and indecision over tapering dominated, while moves in German bunds helped drive down US Treasury yields to their lowest since November," NAB currency strategist Tapas Strickland said.
As US bond yields declined the US dollar dropped, with traders not fully convinced of a speedy pace of Federal Reserve rate hikes and amid worries that Hurricanes Harvey and Irma will weigh on economic growth.
The Aussie dollar was launching into the highest close for 2017 off the back of US dollar weakness, noted Greg McKenna, chief market strategist at AxiTrader in Sydney.
"It is clear to note that the mindset of Aussie dollar traders has changed and the market is well and truly supporting the Aussie dollar on each pullback," he said.
"That's much because of recent local economic strength. It's also because metals prices have been strong, global growth likewise, and the Aussie-US bond spread has been moving in the Aussie dollar's favour."
The differential between Australian and US bonds has been notably helping the Australian dollar this week and the currency has made a few attempts to set fresh highs.
As to how high the Australian currency could go, analysts at Commonwealth Bank recently.suggested that a continued slide in the greenback could see the Aussie dollar push as high as US85¢ by the end of next year.
Weakness in the US dollar explained much of this expected strength in the local currency, CBA chief currency strategist Richard Grace said in a note to clients, as trends that were apparent in late 2016, but which were knocked off course by the shock election of Donald Trump as US President, reasserted themselves.
The factors to weigh on the US dollar were the same, Mr Grace said. Specifically, while the US Fed was poised to lift rates again by the end of the year, the monetary tightening in other jurisdictions, such as Europe, would have a "greater appreciating impact on their exchange rates" this year and the next.
Investors have lately also become a bit more comfortable with China's economic outlook and that has helped push commodity prices higher in recent months, providing another layer of support for the Australian dollar.
Still, some question marks remain over the strength of the Australian economy and the expected path of interest rates in Australia, with Wednesday's GDP numbers a touch weaker than forecast.
"There was nothing in the GDP numbers to advance the case for a rate hike ... we're a long way from operating at full capacity and so a long way from raising interest rates," AMP head of investment strategy Shane Oliver said after that data.
He sees the Aussie at 70 US cents on a one-year view "largely because the Federal Reserve will tighten policy while the RBA will stay on hold."