North Korea may ditch its nukes and the Australian dollar is rallying

Photo by Matt Roberts/Getty Images
  • The Australian dollar surged overnight on news that North Korea may abandon its nuclear programme
  • RBA governor Philip Lowe will speak in Sydney today before the release of Australia’s GDP report
  • There are plenty of data and central bank events scheduled in the second half of the session

North Korea is open to abandoning its nuclear weapons programme, and the Australian dollar is rallying.

That pretty much sums up Tuesday’s trading session with the AUD/USD jumping back above the 78 cent level on a perceived reduction in geopolitical risks.

Here’s the scoreboard as at 7.55am AEDT.

AUD/USD 0.7816 , 0.0052 , 0.67%
AUD/JPY 82.98 , 0.53 , 0.64%
AUD/CNH 4.9317 , 0.0138 , 0.28%
AUD/EUR 0.6301 , 0.0008 , 0.13%
AUD/GBP 0.5628 , 0.0022 , 0.39%
AUD/NZD 1.0719 , -0.0023 , -0.21%
AUD/CAD 1.0071 , 0.0005 , 0.05%

“There was no policy relevant US economic data released overnight, but news North Korea is open to ending its nuclear programmes, a significant step towards defusing the stand off with the US, coincided with the dip in USD and improving financial risk sentiment,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.

The US dollar weakened in response to the North Korean news, sending the AUD/USD back above its 200-day moving average at .7790.

It’s not hard to see when the North Korean news broke in the AUD/USD 5-minute chart.

AUD/USD 5-Minute Chart

While a positive development, Ray Attrill, head of FX Strategy at the National Australia Bank, says there are valid reasons for caution.

“In previous programmes to halt its nuclear ambitions, the North has failed to keep its promises, but ‘risk’ markets have nevertheless responded in positive fashion to the news.”

The Aussie also rallied against all major crosses except for the New Zealand dollar, the latter supported not only by the North Korean headlines but also a dairy auction that wasn’t as weak as markets had been expecting.

Turning to the session ahead, there are plenty of economic data and events both at home and abroad for traders to digest.

Domestically, RBA governor Philip Lowe will deliver a speech on the “Changing Nature of Investment” at the AFR Business Summit in Sydney from 8.35am AEDT.

That will be followed by the release of Australia’s Q4 GDP report at 11.30am AEDT. Markets expect a quarterly increase of 0.5%, seeing the year-on-year rate decline to 2.5%.

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

Outside of those events, there’s also a plethora of US Fed speakers scheduled with Brainard, Kaplan, Bostic and New York Fed president Bill Dudley all in action throughout the session.

The Bank of Canada will also hold its March monetary policy meeting, although the prospects of a rate hike are seen as negligible.

On the data front, highlights include revised Q4 GDP from the Eurozone, trade data from Canada, along with the February’s ADP National Employment, labour costs, EIA crude oil inventories and trade data from the United States.