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The Australian dollar continues to rally

Photo by Jeff Gross/Getty Images

The Australian dollar continued to rally on Tuesday, hitting yet another multi-month high against the greenback.

Here’s the scoreboard as at 8.10am AEDT.

AUD/USD 0.7832 , 0.0029 , 0.37%
AUD/JPY 87.91 , 0.02 , 0.02%
AUD/CNH 5.0908 , 0.0091 , 0.18%
AUD/EUR 0.6491 , -0.0005 , -0.08%
AUD/GBP 0.5759 , -0.0018 , -0.31%
AUD/NZD 1.1015 , 0.0036 , 0.33%
AUD/CAD 0.9791 , -0.001 , -0.10%

After starting the session buying .7803, the AUD/USD rallied on the back of stronger-than-expected Chinese economic data, strength in Chinese stocks and broad-based US dollar weakness, eventually hitting a high of .7844 before easing lower in the second half of the session.

It currently sits at the highest level since late October.

To Greg McKenna, chief market strategist at AxiTrader, the main factor behind the move was continued US dollar weakness.

“On currency markets it was a simple process of rinse and repeat as the US dollar came under heavy selling pressure once again,” he said in his morning note. “It did mount a fight back after solid European manufacturing PMIs was countered with US manufacturing strength, but it is generally weaker across the board.”

At 91.832, the US dollar index (DXY) — heavily influenced by movements against the euro — is currently down 0.32% for the session, extending its decline from early November to 3.5%.

McKenna says that for this trend in the DXY to reverse, it will require either a softer batch of European economic data releases or a material strengthening in upcoming US economic data, something that typically does not occur in the first quarter of the year.

“When it comes to other currencies, the USD weakness is a big factor in the rallies we are seeing,” he adds.

AUD/USD Daily Chart

Whether that trend will continue on Wednesday will likely be determined by sentiment and technicals rather than economic data.

There’s next to no major data releases scheduled in Australia or abroad, and Japanese markets are on holiday.

German unemployment data for December, along with manufacturing PMI and construction spending figures from the US, are the headline acts for the session.

On the central bank front, the US Federal Reserve will release the minutes of of its December FOMC monetary policy meeting, an event where the Fed raised the funds rate by an additional 25 basis points.

Most of the focus will likely be on the commentary relating to the inflation outlook given the Fed’s underlying CPI forecasts were left unchanged at this meeting despite most members factoring in the impact of tax xcuts delivered by the Trump administration in late December.

The minutes will arrive at 6am AEDT Thursday in Australia.

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