The Australian dollar is rebounding as stocks surge around the world

Jeff J Mitchell/Getty Images

The Australian dollar bounce that began late last week went up another gear on Monday, spurred on by massive gains in stocks on both sides of the Atlantic.

Here’s the scoreboard as at 7.50am AEDT.

AUD/USD 0.7849 , 0.0037 , 0.47%
AUD/JPY 85.26 , 0.41 , 0.48%
AUD/CNH 4.9647 , 0.0406 , 0.82%
AUD/EUR 0.6386 , 0.0023 , 0.36%
AUD/GBP 0.5673 , 0.0034 , 0.60%
AUD/NZD 1.0820 , 0.0052 , 0.48%
AUD/CAD 0.989 , 0.0064 , 0.65%

As opposed to last week where US bond yields market dictated direction, most of of the price action today was driven by renewed optimism towards stocks, said Greg Mckenna, Chief Currency Strategist at AxiTrader.

“The fact that US 10-year bonds traded over 2.9% for the first time in four years seemed to matter not to either asset class overnight,” he said, referring to the contrasting performance between stocks and the US dollar.

“European [stocks] have ended with gains above 1% on most major markets. Across the Atlantic, New York stocks are boldly in the green.”

Like stocks, the US dollar also ignored the lift in US treasury yields, losing ground as major currencies such as the euro and Japanese yen recovered ground lost in prior sessions.

“All I can say about the US dollar right now is that it has had a pause in its down trend,” says McKenna. “It may still have further to fall.”

Along with strength in stocks and renewed US dollar weakness, the Aussie was also supported by strength in most major commodity markets.

Combined, it explains why the AUD/USD is currently trading up 0.5% at .7849, nearly a whole cent above Friday’s session low.

AUD/USD Hourly Chart

Turning to the session ahead, it’ll be another quiet one data-wise as traders await the release of US consumer price inflation (CPI) report for January on Wednesday.

In Australia, the weekly ANZ-Roy Morgan consumer confidence survey will be released at 9.30am AEDT. That will be followed two hours later by the National Australia Bank’s (NAB) January business confidence survey.

“In addition to the headline readings of Conditions and Confidence, we are also going to pay close attention to the labour market indicators, namely wage cost and capacity utilisation,” says Rodrigo Catril, Currency Strategist at the NAB. “The latter is highly inversely correlated with the unemployment rate and has been rising in recent months.”

On the policy front, RBA Assistant Governor Lucy Ellis will also speak at the ABE Forecasting conference in Sydney from 8.50am AEDT.

Outside of those events, there are really very few market-moving events scheduled for the Asian session, meaning sentiment and technicals will likely determine whether the Aussie’s run higher will extend.

Later in the session, the main highlight comes from the UK with the release of January’s CPI report.

“After last week’s hawkish Band of England (BoE) [inflation report], the numbers could have an impact on the pricing for the next BoE rate hike,” Catril says. “Currently a March hike is only 13% priced while a May hike is 61%.”

In the US, the NFIB Small Business Optimism report for January will also be released. Loretta Mester, FOMC member, will also speak on monetary policy and the US economic outlook.

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