The Australian dollar just closed above the 80 US cent level for the first time since May 2015, rocketing higher overnight on the back of broad-based US dollar weakness.
It also had a good session against the major crosses, gaining against all except the New Zealand dollar.
Here’s the scoreboard just before 7am AEST.
AUD/USD 0.8003 , 0.0067 , 0.84%
AUD/JPY 88.94 , 0.17 , 0.19%
AUD/CNH 5.3959 , 0.0339 , 0.63%
AUD/EUR 0.6816 , 0.0008 , 0.12%
AUD/GBP 0.6098 , 0.0007 , 0.11%
AUD/NZD 1.0635 , -0.0055 , -0.51%
AUD/CAD 0.9957 , 0.0034 , 0.34%
After tumbling earlier in the session on the back of a weak Australian Q2 inflation report and a speech from RBA governor Philip Lowe in which he talked down the prospect of a near-term increase in official interest rates, the Aussie jackknifed higher during US trade following the release of the US Federal Reserve’s latest interest rate decision.
While it was universally expected that the Fed would leave interest rates unchanged at this meeting, the tone of the accompanying monetary policy statement was more dovish than what the markets expected, said Richard Grace, chief currency strategist at the Commonwealth Bank.
“Markets focused on the fact that the Fed said inflation was ‘running below 2%’ instead of ‘running somewhat below 2%’ as it had in its June statement,” he said in his morning note.
In the absence of updated economic forecasts and a press conference at the July meeting, markets took that small tweak as a sign that a further rate hike this year is now less likely, trimming expectations of another 25 basis point increase this year to around 40%.
Despite the Fed signalling that it expects to reduce the size of its balance sheet “relatively soon”, seemingly firming up expectations that it will begin within months, the inflation downgrade was enough to see US bond yields drop, undermining the US dollar.
As seen in the AUD/USD 5-minute chart below, the Aussie screeched higher as a result, hitting a session high of .8013 before easing slightly into the close.
At one point during the session it had traded as low as .7875 — quite the recovery, right?
And as a result of that surge, the Aussie closed Wednesday trade at the highest level since May 19, 2015.
It has now added over 9% from early May, extending its rally from the the low of .7152 struck late last year to 12%.
After a flurry of market-moving events yesterday, the economic calendar slows to a crawl today, suggesting that sentiment and technicals will dictate whether the Aussie can extend its overnight rally
Domestically, June quarter terms of trade data will be released at 11.30am AEST, while in China, industrial profits data for June will also be released.
Neither will interest traders.
Later in the session, markets will also receive German consumer confidence along with durable goods orders, initial jobless claims and advance goods trade data from the US.
The US releases appear to be the most likely catalysts to generate any short-term volatility in the Aussie today.