The Australian dollar just staged a dramatic reversal

WILLIAM WEST/AFP/Getty ImagesAustralian batsman Glenn Maxwell plays a reverse sweep.
  • The Australian dollar ripped higher on Wednesday, reversing all of the previous sessions losses as sentiment towards Italy’s political stalemate improved.
  • Stronger commodity prices and softer US economic data also helped to push the Aussie higher.
  • The economic calendar is stacked today with major releases from Australia, China, the Eurozone and the United States.

The Australian dollar ripped higher on Wednesday, reversing all of the previous sessions losses as sentiment towards Italy’s political stalemate improved.

Here’s the scoreboard at 7am in Sydney.

AUD/USD 0.7575 , 0.0071 , 0.95%
AUD/JPY 82.5 , 0.89 , 1.09%
AUD/CNH 4.8475 , 0.0278 , 0.58%
AUD/EUR 0.6494 , -0.0007 , -0.11%
AUD/GBP 0.5703 , 0.0042 , 0.74%
AUD/NZD 1.0838 , -0.0028 , -0.26%
AUD/CAD 0.9752 , -0.0011 , -0.11%

After starting the session under pressure, the Aussie began to rally as European traders rolled in, helped by optimism that Italy’s inability to form a government may not necessarily mean that early elections will be called.

“Relieving Wednesday’s acute tension… [were] reports that Italy’s President will allow Five Star and the League to have another attempt to form a government, with Five Star leader Di Maio saying he was willing to propose a choice of new finance minister,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

“The League, which has seen large gains in opinion polls since the election, seems more intent on going back to new elections, but the current indications are that this is going to be the case, it won’t be as early July and which, for now, is being viewed as a positive not a negative.

“Also helpful has been comment from Five Star leader Di Maio saying that the two anti-establishment parties never sought an exit from the euro and that Five Star was willing to cooperate with the President.”

That saw markets, already in recovery mode in Asia, begin to reverse the prior sessions losses, including in the Aussie.

It was also provided tailwinds from strength in crude oil and iron ore prices, along with a surge in the euro that was driven not only by the developments in Italy but also hotter-than-expected inflation readings from Germany and Spain.

Slightly disappointing US economic data also contributed to the Aussie’s strength.

AUD/USD 30-Minute Chart

Against the crosses, the Aussie put in a mixed performance, losing ground against the euro as well as the New Zealand and Canadian dollars.

The latter was helped by higher crude prices, along with a hawkish shift from the Bank of Canada at its May monetary policy meeting which saw the odds of a rate increase in July jump sharply.

While headlines and sentiment towards Italy are likely to remain in the driving seat today, there is a raft of major economic data on the way, including from Australia.

Australia’s Q1 CAPEX report will be released at 11.30am AEST, a release that has generated volatility in Australian financial markets in the past.

This 10-second guide has more on what to look out for in the report.

Alongside the CAPEX report, the RBA will also release Australia private sector credit figures for April.

Regionally, China’s government will release a raft of PMI reports for May at 11am AEST.

Later in the session, highlights include inflation and unemployment figures from the Eurozone, Spanish GDP, UK consumer credit, Canadian GDP along with personal spending and consumption data, including core PCE inflation, from the United States.

On the central bank front, US FOMC members Bullard, Bostic and Brainard are all scheduled to deliver speeches.

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