The Australian dollar is back above the US 80 cent level, boosted by improved risk sentiment and a small upgrade from the IMF in its latest global growth forecasts.
However, as seen in the scoreboard as at 8.10am AEDT, while the Aussie gained ground against the greenback, it traded mixed against the major crosses.
AUD/USD 0.8015 , 0.0025 , 0.31%
AUD/JPY 88.91 , 0.39 , 0.44%
AUD/CNH 5.1318 , 0.0172 , 0.34%
AUD/EUR 0.6537 , 0.0024 , 0.37%
AUD/GBP 0.5731 , -0.0031 , -0.54%
AUD/NZD 1.0948 , -0.0032 , -0.29%
AUD/CAD 0.9975 , -0.001 , -0.10%
After opening the week at .7990, the AUD/USD hit a low of .7980 in Asia before rebounding to as high as .8027 in Europe, boosted by broad-based US dollar weakness as a result of the US government shutdown that kicked in at the start of last weekend.
At the margin, a 0.2 percentage point upgrade to the IMF’s global growth forecasts for this year and next — both coming in at 3.9% — also helped the Aussie to push higher during the session.
“The stronger growth projections imply the fastest pace of growth since 2011, and were driven by the US tax cuts, and accelerating growth in Europe and Asia,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.
However, news that a deal had been struck to re-open the US government helped to trim the Aussie’s gains in the latter parts of trade.
“A full Senate vote to ratify the deal struck a few hours ago to re-open the US government is scheduled for 8.30am AEDT,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.
“It’s now a formality, but does nothing more than kick the can two weeks down the road until February 8.”
Of more importance, says Attrill, will be upcoming debate to extend the US government debt ceiling.
“[Of] more significance will be what happens when the debt ceiling is hit, likely in March,” he says.
“It was the failure to lift this in a timely manner in 2011 that led to S&P expressing a loss of faith in the US governments ability to get its fiscal affairs in order and to a downgrading of the sovereign to AA+ from AAA.”
As a result, the AUD/USD currently trades at .8015 late in Monday’s session.
“It doesn’t look like budging too far from 80 cents for the next little while,” says Attrill.
While the Aussie gained against the greenback, it finished mixed against the crosses, losing ground to the British pound and New Zealand dollar.
Grace said the strength in the pound was due to continued speculation about a positive trade deal being delivered as part of ongoing Brexit negotiations.
“French President Emmanuel Macron offered the UK the possibility of a Brexit deal that included financial services,” he says, adding that helped the pound to outperform in overnight trade.
Turning to the day ahead, it looks set to be a quiet one with the Bank of Japan’s January monetary policy decision the only event of note.
“We don’t expect the BoJ to provide any succour for the view they are in the process of ‘stealth’ policy tightening, with a resolute commitment to its [qualitative and quantitative easing with yield curve control program],” says Attrill.
“If so, the Yen should trade a bit softer out of the decision.”
Grace, too, agrees that the BoJ is unlikely to stun markets today.
“We expect it to push back against the view among some market participants that a policy tightening is possible this year,” he says.
“Japanese inflation is simply too weak to encourage a tightening of monetary policy.”
Grace says that “there is a small risk the BoJ dumps its annual JGB purchase target of ¥80 trillion because it is redundant”, noting that if that were to occur “market participants may misinterpret the move as a policy tightening.”
The BoJ has previously pledged to buy Japanese government bonds at an annual pace of around 80 trillion yen, although it’s asset purchases have been significantly below this level for the best part of a year.
There is no set time for the BoJ decision, although it tends to arrive around 1pm AEDT on most occasions. The unofficial rule of thumb among traders is that the longer it takes the BoJ to announce its decision, the more likely it is that they have changed policy settings.
Outside of the BoJ, the calendar elsewhere is quiet.
German investor sentiment (ZEW), UK industrial orders (CBI), Eurozone consumer confidence and Richmond Fed manufacturing index in the US are the main headline acts.