- The AUD/USD has risen to multi-week highs on Monday.
- Strong gains in Asian stocks, more buying in iron ore futures and positioning adjustments ahead of this week’s US Fed meeting may explain the sudden bout of buying in the Aussie.
The Australian dollar is on the charge in Asia, lifting to fresh multi-week highs against the greenback.
The AUD/USD currently trades at .7113, up 0.36% from Friday’s closing level. That’s the highest level since March 4, breaking out of the narrow trading range it’s been stuck in for several weeks.
The break higher comes as Asian stocks continue to climb, led once again by China. Dalian iron ore futures have also surged by close to 2% from Friday’s day session close, likely assisted by news of further supply disruptions in Brazil following a mine disaster in late January.
With the US Federal Reserve set to announce its March interest rate decision later this week, the sudden burst of buying in the AUD/USD, likely helped by stop-loss orders placed above the .7100 level, could also reflect mounting expectations that the Fed will reinforce the view that it can be patient with further monetary policy tightening this year.
“We expect the USD to trade on the defensive this week,” said Richard Grace, Chief Currency Strategist at the Commonwealth Bank.
“Expectations are for the FOMC to trim their 2019 GDP forecasts and potentially remove one or two of the interest rate hikes in the ‘dot plot’.
“It is possible the FOMC will also provide a more detailed plan on the shrinkage of the Fed’s balance sheet.”
While that, along with a continued lift in investor risk appetite in Asia, may explain why the US dollar is trading on the back foot on Monday, Grace isn’t expecting it to weaken significantly in the coming days.
“Given the soft growth in Europe, China, Australia and Japan… we anticipate limited USD weakness,” he said.
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