The Australian dollar is back above 76 cents this morning, moving higher on the back of broad-based US dollar weakness.
However, while it rallied against the greenback, it lost ground against all the major crosses despite strength in commodity markets.
Here’s the scoreboard as at 8.05am AEST.
AUD/USD 0.7617 , 0.0039 , 0.51%
AUD/JPY 84.69 , -0.51 , -0.60%
AUD/CNH 5.0260 , 0.0045 , 0.09%
AUD/EUR 0.6443 , -0.0012 , -0.19%
AUD/GBP 0.5718 , -0.0005 , -0.09%
AUD/NZD 1.1071 , -0.0021 , -0.19%
AUD/CAD 0.9675 , -0.0002 , -0.02%
It follows a renewed bout of US dollar selling, prompted by renewed uncertainty on the outlook for US inflation from Federal Reserve Chair Janet Yellen.
“Yellen [warned] that tightening too quickly risked stranding inflation below the Fed’s 2% target,” said David de Garis, Economist at the National Australia Bank.
“She also called out the continuing heightened level of uncertainty over the inflation outlook, even though she said that most FOMC members were using a working assumption that the downside mystery on inflation this year would not re-appear next year.”
That led to a decline in US bond yields, and with it the US dollar.
Already under pressure following Yellen’s remarks and thin liquidity ahead of the Thanksgiving Holiday, the US dollar was given a further kick by the release of the minutes of the Fed’s November FOMC meeting.
Like Yellen’s words earlier in the session, uncertainty on the inflation outlook was scattered throughout the document.
“The quote that ‘many officials observed that low inflation `might reflect not only transitory factors, but also the influence of developments that could prove more persistent’ suggests that FOMC members might be on the verge of wavering on their dot point forecasts for 2018,” de Garis says.
Those concerns have weighed on the greenback, casting doubt as to whether the Fed will lift rates up to four times next year.
Joseph Capurso, senior currency strategist at the Commonwealth Bank, said that the decline in US bond yields acted to support the Australian dollar.
“The Australia-US two-year bond spread has drifted higher in the past few days to 5 basis points, after briefly dipping below zero on Tuesday for the first time since 2000M,” he says.
“Together with the improvement in the global economic outlook, and RBA Governor Lowe’s recent positive comments on the Australian economy, we are not getting too bearish on AUD.”
Like Capurso, it seems that many traders adopted a similar view on Wednesday, pushing the Aussie back above 76 cents for the first time in over a week.
Turning to the day ahead, it’s likely to be quiet with US markets shutting down for the Thanksgiving holiday.
There’s also little on the economic calendar with New Zealand retail sales the only release of note during the Asian session. That suggests that sentiment, positioning and moves in Chinese commodity markets will likely dictate which direction the Aussie will move today.
Later in the day, markets will receive detailed Q3 GDP data from Germany and the UK, flash manufacturing and services PMI readings from the Eurozone, Germany and France, along with Canadian retail sales.
The ECB will also release the minutes of its October monetary policy meeting.