The Australian dollar goes from 'hero to zero'

Michael Regan/Getty ImagesNot the strongest start to the week.
  • The Australian dollar went from “hero to zero” on Monday, giving back all of its earlier gains in the second half of the session.
  • A sharp plunge in iron ore prices — Australia’s largest goods export by dollar value — may have been a catalyst behind the reversal.
  • The main highlight on Tuesday will come from a speech from US Fed Vice Chair Richard Clarida.

The Australian dollar had a topsy-turvy start to the week, initially lifting in early trade before giving back those gains in the latter parts of the session.

Here’s the scoreboard at 8am in Sydney on Tuesday.

AUD/USD 0.7229 , -0.0005 , -0.07%
AUD/JPY 82.12 , 0.49 , 0.60%
AUD/CNH 5.0163 , -0.0027 , -0.05%
AUD/EUR 0.6376 , 0.0005 , 0.08%
AUD/GBP 0.5640 , 0.0019 , 0.34%
AUD/NZD 1.0653 , -0.0008 , -0.08%
AUD/CAD 0.9583 , 0.0013 , 0.14%

After opening the week at .7234, the AUD/USD rose to as high as .7276 in European trade, helped by a bounce in crude oil and stocks after days of heavy selling pressure.

Given there was no catalyst to explain the sudden turnaround in sentiment, one suspects that lopsided short-term short positioning, and a dash of hope that a trade deal may be struck between Donald Trump and Xi Jinping later in the week at the G20 summit, may have driven the rebound in risk assets in Asia and European trade.

However, while stocks and crude oil went on with the move in North American trade, the Aussie dollar rally did not, reversing all of its earlier gains, and more, heading into the close.

“The Aussie dollar story over the past 24 hours has been one of ‘Hero to Zero’,” mused Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“It’s hard to pinpoint the catalyst [for the reversal], other than a somewhat belated reaction to the decline in iron prices which began in Asia on Monday.”

Iron ore spot prices tumbled by between 8.3% to 9.1% across the major grades on Monday, the largest declines reported in well over a year. In some instances, the falls were the largest on record.

Iron ore is still Australia’s most valuable goods export by dollar value, meaning that on occasion traders pay attention to sharp and sudden price moves given the implications for Australia’s trade balance and terms of trade.

With less than a hour left to trade, the AUD/USD sits at .7229.

Investing.comAUD/USD Hourly Chart

Against the major crosses, the Aussie gained against the Japanese yen, helped by the improvement in investor risk appetite. Renewed doubt over the ability of Theresa May’s Brexit withdrawal agreement to pass the UK House of Commons also weighed upon the British pound, helping the Aussie to reverse earlier losses.

Optimism over a potential reduction to Italy’s budget deficit target for 2019 from 2.4% of GDP to 2.1% helped to boost the euro, making it one of the top G10 performers for the session.

Turning to the day ahead, there’s once again little on the economic calendar that will interest traders during the Asian session, leaving sentiment, technicals and headlines to dictate broader direction.

New Zealand trade data for October will be released at 8.45am AEDT. Other than that there’s really nothing.

Later in the session, most interest will be on a speech from US Federal Reserve Vice Chair Richard Clarida. Markets will be looking for any clues as to whether the Fed is wavering from its optimistic views towards the US economy.

Bostic, Evans and George of the Fed will also speak during the session, as will Mersh of the ECB.

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