The Australian dollar has gone 'from zero to hero'

Michael Dodge/Getty Images
  • The Australian dollar has seen a significant rebound and early on Monday is trading at its highest level since late December.
  • The AUD/USD has now rallied over 6.5% after plunging to a decade low on Thursday.
  • Dovish remarks from US Fed Chair Jerome Powell, along with further monetary policy easing in China and hopes for a trade breakthrough between the US and China, largely explain the recovery seen in the Aussie dollar in recent trade.

The Australian dollar has opened the new trading week higher, adding to strong gains achieved on Friday.

Here’s the scoreboard at 8am in Sydney.

AUD/USD 0.7123 , 0.0011 , 0.15%
AUD/JPY 77.38 , 0.23 , 0.30%
AUD/CNH 4.8891 , 0.011 , 0.23%
AUD/EUR 0.6247 , 0.001 , 0.16%
AUD/GBP 0.5596 , 0.0014 , 0.25%
AUD/NZD 1.0556 , 0.0007 , 0.07%
AUD/CAD 0.9519 , 0.0072 , 0.76%

After plunging to as low as .6730 on Thursday, the lowest level since early 2009, the AUD/USD surged on Friday, helped by a raft of positive headlines that sparked short-covering from traders.

“If ever there was a case of a currency going from zero to hero in the space of 24 hours, it was the Australian dollar between Thursday and Friday,” said Ray Attrill, Head of FX Strategy at the National Australia Bank.

“The AUD/USD was Friday‚Äôs best performing currency by far, adding 1.5% to close above 0.71 for the first time since 20th December.”

After initially finding support on news that trade negotiations between the US and China would resume this week and stronger-then-expected PMI data from China earlier in the session, the Aussie’s rally went up a gear in European and North American trade, helped by further monetary policy easing from the People’s Bank of China and dovish remarks from US Fed Chair Jerome Powell towards the outlook for US monetary policy settings in the months ahead.

“China announced a 1% cut to the Reserve Requirement Ratio, applicable to all banks. This year we might reasonably expect to see as many as four 100 basis point cuts and in the absence of capital outflow pressures on the currency, quite possibly cuts to the benchmark 1-year lending rate as well,” Attrill said.

“Fed Chair Powell confirmed a more cautious 2019 Fed outlook and stated he is ‘listening carefully’ to markets. Powell stated ‘muted inflation’ gives the Fed room to be ‘patient and see how the economy goes’.”

Stocks, commodities and commodity-linked currencies rallied on the news, seeing the AUD/USD jump to as high as .7115 before easing fractionally into the close.

Not even a strong US non-farm payrolls report was enough to dent the Aussie’s charge, extending its rally from the low seen on Thursday to 6.5%.

That move has extended further in early trade on Monday.

Investing.comAUD/USD Hourly Chart

Turning to the session ahead, the broader direction for currency markets will likely be determined by headlines and sentiment towards trade negotiations between the US and China as they resume in Beijing today.

“[This is] the first meeting since Trump and Xi agreed to a 90 day trade ceasefire on December 1,” Attrill says. “Both sides have until 1 March to make a deal, after which Trump has pledged to ramp up tariffs to 25% on $US200 billion worth of Chinese imports.”

On the data front, the main highlight comes from the United States with the release of the ISM’s non-manufacturing PMI report for December.

Before that arrives at 2am AEDT, markets will also receive services PMIs from Australia and Japan, retail sales and factory orders from Germany, Eurozone investor confidence and retail sales along with factory orders from the United States.

Bostic from the US Fed is also scheduled to speak during the session.

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