The Aussie dollar is not far off multi-year lows this morning, sitting at 0.8919 against the US dollar.
But after a very weak Q4 2013 where it lost more than 6%, it seems the Aussie might have found some support at current levels.
We asked Richard Grace, the CBA’s head of FX Strategy, what he thought was driving this support and he told Business Insider that “with reduced expectations of a near-term interest rate cut by the RBA, the selling pressure in AUD which we saw in Q4 last year has eased.
“The front-part of the Australian interest rate curve has shifted higher. The Australia-US two-year bond spread has also lifted back to 243bpts from around 220bpts when AUD/USD was at its 2013 lows.”
So it’s a case of interest rates supporting the Aussie dollar while the vast speculative community is lined up selling once again, as data from the Commodity Futures Trading Commision (the US body which reports trader positions on US futures markets) showed last week.
As the battle rages, Grace thinks the AUD/USD is also “likely to be going through a period of consolidation.”