The Australian dollar rallied hard on Wednesday, recovering from an early dip to finish higher.
While buying against the euro and firmer crude oil prices were cited as two catalysts to explain the strength, reversing early losses following the release of another soft Australian wage report, perhaps there was another factor at play.
According to reports from Bloomberg, Kazakhstan’s central bank increased its Australian dollar allocation as a share of FX reserves from 5% to 8% last year.
The bank also upped its allocation to US dollars while reducing its exposure to the euro and Japanese yen.
While interesting news, Ray Attrill, Head of FX Strategy at the National Australia Bank, says it’s unlikely to explain the strength seen in the Australian dollar on Wednesday.
“It’s tempting to attribute the AUD’s comeback to reports yesterday that the Kazakhstan central bank has increased its reserve allocation to Australian dollars from 5% to 8%, but for a central bank with barely $4bn worth of reserves the flows involved would barely have touched the sides of the FX market,” he says.
“Still, a reminder, perhaps, that despite the cross-over between US and Australian yields, there is no evidence reserve mangers are in general less willing owners of Australian dollars and related financial assets.”