The Australian dollar is charging higher against the greenback, hitting a 4-month high on Wednesday.
Here’s the scoreboard as at 8am AEDT.
AUD/USD 0.8074 , 0.0078 , 0.98%
AUD/JPY 88.14 , -0.09 , -0.10%
AUD/CNH 5.1263 , 0.0081 , 0.16%
AUD/EUR 0.6511 , 0.0008 , 0.12%
AUD/GBP 0.5682 , -0.003 , -0.53%
AUD/NZD 1.0870 , -0.0006 , -0.06%
AUD/CAD 0.995 , 0.0016 , 0.16%
One thing immediately stands out.
While the Aussie surged against the greenback, it put in a mixed performance against the crosses, underlining what was the major theme for the session — another shellacking for the US dollar.
As Elliot Clarke and Richard Franulovich, strategists at Westpac Bank explain, the latest bout of weakness was driven by remarks from US Treasury Secretary Steve Mnuchin at the World Economic Forum in Davos.
“The USD slumped after Mnuchin told reporters that ‘obviously a weaker dollar is good for us as it relates to trade and opportunities,'” they wrote in their morning report.
“Mnuchin added that the dollar’s short term value ‘is not a concern of ours at all.'”
The US dollar index, already under pressure in Asian trade, sank on the news, hitting a fresh three-year low as a consequence.
“Mnuchin’s comments give the impression of benign acceptance of the recent slide in USD and are a departure from the ‘strong dollar’ mantra of Treasury secretaries before him,” said Clarke and Franulovich.
Along with firmer commodity prices — helped by US dollar weakness and strong economic data out of Japan and Europe — it saw the AUD/USD jump to as high as .8082, a level last seen on September 20 last year.
It has now gained 7.7% from the low of December 8.
And, as seen in the 4-hour chart below, the AUD/USD is quickly closing in on levels that it has struggled to overcome in the past.
Turning to the session ahead, there’s a smattering of major data releases and events scheduled both regionally and abroad.
First up, New Zealand Q4 consumer price inflation (CPI) will be released at 8.45am AEDT.
Markets are looking for an increase in headline CPI of 0.4% for the quarter, leaving the change on a year earlier at 1.9%, just below the mid-point of the Reserve Bank of New Zealand’s (RBNZ) 1-3% target.
While it may be tempting to extrapolate the Kiwi CPI figure for what may happen in Australia next week, the relationship between the two readings is loose at best.
Later in the session, the other big event will be the European Central Bank’s (ECB) January monetary policy decision and media conference.
“There has been considerable debate over the ECB’s forward guidance and potential changes to it following the December minutes and subsequent news reports,” say Clarke and Franulovich.
“In January and the next few months, we expect little change. But the tone will shift by mid year.”
One common theme running through most analyst reports is that ECB President Mario Draghi will attempt to talk down the euro given it currently sits at a three-year high.
Many also suggest that if the euro does fall during Draghi’s press conference, it will provide an opportunity for those looking to enter or add to long positions.
Given the prevalence of this view, and the recent momentum in the euro and European economic data, Greg Mckenna, Chief Market Strategist at AxiTrader, says it will be difficult for Draghi to weaken the euro.
“What Mario Draghi could do or say to halt the Euro’s rally now is difficult to know given the strength of the EU economy and Mnuchin’s comments,” he says.
The ECB monetary policy decision will arrive at 11.45pm AEDT. Mario Draghi’s press conference will follow 45 minutes later at 12.30am AEDT.