The Australian dollar continues to rally as the greenback pummelling intensifies

Photo by Leigh Dawney/Getty Images

The Australian dollar put in a mixed performance on Thursday, continuing to rally against the greenback but losing ground against most other major crosses.

Here’s the scoreboard showing the divergent performance during the session.

It’s taken at 8.05am AEDT.

AUD/USD 0.7937 , 0.0014 , 0.18%
AUD/JPY 84.28 , -0.50 , -0.59%
AUD/CNH 4.9845 , -0.0161 , -0.32%
AUD/EUR 0.6349 , -0.0014 , -0.22%
AUD/GBP 0.5631 , -0.0028 , -0.49%
AUD/NZD 1.0720 , -0.0027 , -0.25%
AUD/CAD 0.9913 , 0.0014 , 0.14%

As was the case on Wednesday, the story of the session was once again broad-based US dollar weakness.

The greenback simply can’t take a trick right now with every man, women and child seemingly prepared to sell it despite ongoing signs that inflationary pressures are building in the US.

As Elias Haddad, Senior Currency Strategist at the Commonwealth Bank explains, the dollar was pummelled again on Thursday despite the release of a stronger-than-expected US producer price inflation report for January.

“[The] USD has been under downside pressure and US equities are rallying despite more evidence of faster US inflation pressures,” he says.

“US core PPI inflation beat expectations with a 0.4% increase, [leaving the gain over the year at 2.2%]. This comes on the heels of yesterday’s stronger than expected US January core CPI print.”

Despite further evidence of an acceleration in inflationary pressures, the US dollar index, or DXY, was thumped lower again, falling by over 0.6%, leaving it teetering just above the multi-year low struck in January.

Haddad says “the reaction of the USD and US equities to rising US inflation pressures suggest market participants are not convinced the Fed will quicken the pace of its interest rate normalisation cycle”.

“Fed funds futures continue to discount about 75bps of interest rate hikes this year,” he says, referring to markets pricing in three 25 basis point rate hikes.

“The bottom line is that the fundamental USD downtrend is intact.”

AUD/USD Hourly Chart

While that helped to push the AUD/USD to as high as .7966 during Thursday’s session, it did not help the Aussie against the crosses with losses recorded against all major pairs except the Canadian dollar.

In particular, the Aussie underperformed against currencies that run current account surpluses such as the yen and euro. It also fell to six-month low against the Kiwi dollar.

“Yesterday’s Australian labour market report came in line with expectations… [but] the detail looked a little bleaker with 50,000 full-time jobs lost and the creation of 66,000 part-time positions,” said Rodrigo Catril, Currency Strategist at the National Australia Bank.

“This might have been a factor weighing on the AUD overnight.”

Turning to the session ahead, there is little on the economic calendar that carries to produce any real market fireworks.

In Australia, Reserve Bank of Australia Governor Philip Lowe will make his semiannual appearance before parliament start at 9.30am AEDT.

Over the past 10 days we’ve had a speech from the Governor and Assistant Governor Luci Ellis, February’s monetary policy statement, the bank’s quarterly statement on monetary policy and a jobs report that was largely in line with market expectations.

And Australia’s key Q4 wage price index report won’t be released until Wednesday next week.

Given the circumstances, it’s hard to see the Governor adding anything that markets don’t already know.

If there is to be a surprise, it will likely come from the off-the-cuff Q&A session that begins after the Governor’s opening statement.

Outside of Australia, other highlights today include UK retail sales along with housing starts, building permits and the preliminary reading of the University of Michigan’s consumer sentiment report for February from the US.

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