The Australian dollar is looking rock solid

Photo by Mike Hewitt/Getty Images

The Australian dollar is looking rock solid in early Asian trade on Tuesday, pushing higher against the greenback and most of the major crosses.

Here’s the scoreboard as at am AEDT.

AUD/USD 0.7665 , 0.0021 , 0.27%
AUD/JPY 86.27 , 0.28 , 0.33%
AUD/CNH 5.0670 , 0.0238 , 0.47%
AUD/EUR 0.6506 , 0.0009 , 0.14%
AUD/GBP 0.5727 , -0.0001 , -0.02%
AUD/NZD 1.0956 , 0.0047 , 0.43%
AUD/CAD 0.9856 , 0.0023 , 0.23%

At .7665, the AUD/USD is currently up 0.27%, holding onto the gains achieved in Asian trade on Monday.

As Greg McKenna, Chief Market Strategist at AxiTrader notes, the move was largely underpinned by US dollar weakness rather than Australian dollar strength, an outcome that came despite continued optimism over the prospect of US tax cuts being delivered by the end of the year.

“Riddle me this. Why are US and global stock markets so excited about US tax cuts but US bonds and the US dollar so nonplussed,” Mckenna mused in his morning note.

“Clearly part of the answer is that forex and bond traders don’t enjoy the specific benefits that many American companies, and thus there shareholders, will enjoy from the reduction in the tax rate.

“The other part of the answer is that the macro traders in forex and bonds still don’t believe the hype.”

McKenna says that currency traders, as opposed to those dabbling in stocks, appear to be focused on the improvement in the global economy, something he believes helps explain why the US dollar is struggling to find any traction at present.

“Forex traders are focused it seems on the fact that Europe is growing strongly, that Theresa May has had some encouraging conversations about trade, and the fact that with synchronised growth the world is growing not just the US and that means other central banks will follow the Fed — eventually,” he says.

“That’s the rhetorical view that supports the recent price action and it makes sense.”

Others, such as Rodrigo Catril, Currency Strategist at the National Australia Bank (NAB), suggested that US politics may have been another factor that weighed upon the greenback.

“Republicans and Democrats are still haggling the terms of a temporary spending bill that needs to be passed before Friday if a government shutdown is to be avoided,” he says. “The later may be a factor weighing on the USD which was unable to perform overnight despite a rise in US equities and US Treasury yields.”

The renewed bout of US dollar weakness, along with strong gains in stocks and iron ore, undoubtedly contributed to the Australian dollar’s strength on Monday.

AUD/USD Hourly Chart. Source: Thomson Reuters

Turning to the session ahead, most attention in Asia will be on the release of the minutes from the Reserve Bank of Australia’s (RBA) December monetary policy meeting at 11.30am AEDT.

“Our sense is that they are likely to reiterate the Bank’s positive outlook on the local and global economy, but signs of a cooling housing market and subdued inflation are likely to keep the RBA on hold over the coming months,” says Catril at the NAB.

Outside of Australia, New Zealand business and consumer confidence data is also scheduled for release.

Later in the session, data highlights include German business confidence figures from the Ifo, Q3 labour costs from the eurozone, the latest dairy product auction from the GDT — always an important release for the Kiwi dollar — along with current account, building permits and housing starts from the United States.

Weekly US crude oil inventory data from the API will also be released.

After dominating market discussion for the best part of a year, voting is also expected to get underway on the US tax package as well.

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