The Aussie dollar is rebounding as North Korean fears fade away

Photo by Ronald Martinez/Getty Images

The Australian dollar endured a topsy-turvy session on Tuesday, initially tumbling, then rallying, before closing close to flat.

Here’s the scoreboard as at 7am AEST.

AUD/USD 0.7951 , -0.0011 , -0.14%
AUD/JPY 87.24 , 0.26 , 0.30%
AUD/CNH 5.2531 , -0.0154 , -0.29%
AUD/EUR 0.6640 , -0.0006 , -0.09%
AUD/GBP 0.6154 , -0.0002 , -0.03%
AUD/NZD 1.0952 , -0.0018 , -0.16%
AUD/CAD 0.9944 , -0.0009 , -0.09%

Much of the wild price action can be explained by a shift in sentiment towards what North Korea’s latest missile test will mean to markets in the broader scheme of things.

“The ‘risk off’ sentiment that overshadowed markets after the launch of yet another missile from North Korea didn’t even last 24 hours,” said David de Garis, an economist at the National Australia Bank.

As is so often the case, the initial selloff in risk assets that accompanied news of the test quickly abated, with traders seemingly taking the view that it’s all been seen before.

Whether rightly or wrongly, the more often these events occur without leading to a more forceful response from the likes of the US, Japan or South Korea, it will merely encourage traders to buy the dip whenever the opportunity presents.

Like broader risk assets, that was seen in abundance in the AUD/USD during the session.

AUD/USD 5-Minute Chart

The rebound in the Aussie came despite a large reversal in the US dollar during the session, fuelled by US president Donald Trump’s response to the latest missile test, continued speculation over US tax reforms along with a strong US consumer confidence reading for August.

Stretched short positioning in the US dollar, as seen in recent data released by the US Commodity Futures Trading Commission, no doubt contributed to the greenback’s rebound, keeping the Aussie’s gains in check.

Turning to Wednesday’s trading session, there are a few important data releases scheduled, both in Australia and abroad.

Domestically, markets will receive June quarter construction work data, a partial input that will flow into Australia’s GDP report next Wednesday, along with building approvals for July.

The value of work done in the June quarter is expected to increase 1%, while building approvals are tipped to slide by 5% in July.

Both reports will arrive at 11.30am AEST.

Outside of Australia, the other notable events during Wednesday’s trading session include German CPI, UK consumer and housing finance along with the second reading of Q2 GDP and August’s ADP National Employment report in the US.

Trump is also scheduled to speak on tax reform in Springfield, Missouri, an event that could dictate movements in currency markets in the second half of the session.

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