The Australian dollar is quickly closing in on the 80 US cent level, opening the new trading week at .7906, the highest level in close to four months.
Here’s the scoreboard at 8am AEDT.
AUD/USD 0.7906 , -0.0006 , -0.08%
AUD/JPY 87.84 , 0.06 , 0.07%
AUD/CNH 5.1055 , -0.0004 , -0.01%
AUD/EUR 0.6480 , -0.0002 , -0.03%
AUD/GBP 0.5756 , -0.0001 , -0.02%
AUD/NZD 1.0896 , -0.0009 , -0.08%
AUD/CAD 0.9854 , -0.0005 , -0.05%
As Ray Attrill, head of FX Strategy at the National Australia Bank (NAB), explains, the continued rally in the AUD/USD on Friday — taking its gain from mid-December to nearly 5.5% — was almost entirely due to a surge in the euro and British pound, contributing to the US dollar index, or DXY, falling to a fresh three-year low.
“US dollar weakness had more to do with independent strength for the Euro and Sterling, the former on news early evening our time Friday that Angela Merkel’s CDU and Martin Schulz’s SPD had made an outline agreement on forming another German Grand Coalition, and the latter on reports that the Spanish and Dutch Finance ministers were said to favour a soft Brexit that kept Britain as close to the EU as possible,” said Attrill in his morning note.
On top of the release of the minutes of the ECB’s December monetary policy meeting on Thursday — something that was perceived as hawkish by the markets — that saw the euro surge to above 1.22 against the greenback, leaving it at the highest level since December 2014.
The strength in the euro weighed on the US dollar despite the release of strong US inflation and retail sales figures during the session, contributing to the Aussie jumping back above the 79 cent level for the first time since late September.
“USD weakness meant AUD/USD finally made mincemeat of the 0.7880-90 resistance area that had been functioning at mid-week, to a high of 0.7922 and close of 0.7917, the latter the highest since September 26th,” says Attrill.
“In terms of Fibonacci retracement levels, the AUD/USD has now recouped more than 61.8% of the September-December decline and it has to be expected that we will retest 0.80 sooner rather than later and if so then quite possibly the 0.8125 2017 high.
Turning to the day ahead, whether the US dollar weakness persists will likely be determined by sentiment and technicals rather than fundamentals given a quiet data calendar and public holiday in the US.
On the data front, Eurozone trade figures for November along with Indian wholesale price inflation for December, headline what is a slow start to the week for economic data.
Locally, the Melbourne Institute’s monthly Australian inflation gauge will also be released at 11am AEDT, a report that may attract some attention ahead of the ABS’ official Q4 release later in the month.
Likely ensuring a quiet session to start the week, US markets will be closed for the Martin Luther King Jr holiday.