CBA: Recent weakness in the Australian dollar won't last

Photo by Joe Raedle/Newsmakers

Having risen to as high as .7256 during Asian trade, the Australian dollar followed risk assets lower on Friday evening, weighed down by a reverse in commodity prices and strong economic data from the US.

A robust core PCE inflation reading from the US, something that saw expectations for near-term interest rate hikes increase modestly, saw the US dollar rise to the highest level since early January, placing pressure on other currencies as a consequence, including the Aussie dollar.

“US interest rates lifted following Friday’s strong increase in January consumer spending (0.5%) and the unexpected upward revision to US Q4 GDP growth from 0.4% to 1.0%,” said Joseph Capurso, currency strategist at the CBA. “Importantly, the (core) PCE inflation rate accelerated to 1.7% p.a., only modestly below the FOMC’s 2% p.a. target.”

As at 8am AEDT the AUD/USD currently buys .7132, well below Friday’s opening level of .7232. Earlier in the session the pair fell to as low as .7127, near the lowest level seen since February 19.

Despite the recent weakness, Capurso suggests that the Aussie could move substantially higher in the week ahead.

“AUD/USD will be affected by the cross-currents of the partial economic data ahead of the release of Australian Q4 GDP on Wednesday, the RBA meeting and the key US economic data,” says Capurso. “Overall, we expect AUD to trade firmer, but remain volatile, helped by a range-trading USD and evidence that the Australian economy is resilient despite the huge fall in mining investment.”

“AUD has a good chance of ending the week above 0.7358 year-to-date high this week.

While there is a plethora of domestic economic data scheduled for Monday’s Asian session, including GDP inputs such as corporate profits, business inventories and government expenditure figures, most of the market moving events will arrive later in the week.

To name a few, markets will receive the RBA’s monetary policy decision for March, Q4 GDP, and retail sales for January.

Offshore, PMI gauges from China and Japan will also be influential.

Here’s the Aussie current Aussie dollar scoreboard.

  • AUD/USD 0.7132 , 0.0004 , 0.06%
  • AUD/JPY 81.24 , -0.02 , -0.02%
  • AUD/CNH 4.6690 , 0.0039 , 0.08%
  • AUD/EUR 0.6529 , 0.001 , 0.15%
  • AUD/GBP 0.5144 , 0.0005 , 0.10%
  • AUD/NZD 1.0741 , -0.0008 , -0.07%

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