The Australian dollar rebounds in thin holiday trade

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  • The Australian dollar rebounded on Wednesday after a shellacking a session earlier, helped by an improvement in investor risk appetite.
  • A rebound in stocks and crude oil, soft US economic data, along with speculation over the future path of monetary policy from the US Fed all helped the Aussie’s cause.
  • The economic data calendar is quiet on Thursday and US markets are closed for the Thanksgiving holiday, meaning it could be a quiet day for markets in the absence of any unexpected news.

The Australian dollar rebounded on Wednesday after a shellacking a session earlier, helped by an improvement in investor risk appetite.

Light volumes and position squaring ahead of Thanksgiving in the States largely explain the move given an absence of major news during the session.

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

AUD/USD 0.7260 , 0.0047 , 0.65%
AUD/JPY 82.07 , 0.74 , 0.91%
AUD/CNH 5.0268 , 0.0182 , 0.36%
AUD/EUR 0.6377 , 0.0034 , 0.54%
AUD/GBP 0.5682 , 0.0042 , 0.74%
AUD/NZD 1.0625 , 0.0007 , 0.07%
AUD/CAD 0.9616 , 0.0018 , 0.19%

After beginning trade at .7213, the AUD/USD initially dipped to as low as .7203 before steadily climbing in Asian, European and North American trade.

A rebound in Chinese stocks and yuan from lows struck earlier in the session undoubtedly helped the Aussie’s cause, helping to calm investor nerves after ugly declines in recent days.

Along with a rebound in stocks and crude oil and soft US economic data, Rodrigo Catril, Senior FX Strategist at the National Australia Bank, said the Aussie’s push higher was helped by speculation the US Fed may not tighten monetary policy as fast as previously anticipated next year.

“A MNI report suggesting the Fed may be looking to pause next year got a fair bit of air time and has played a role for the small pullback in the USD overnight,” he said.

“The report suggested the Fed could end its cycle of interest rate hikes ‘as early as the spring, as it starts to consider at least a pause to its gradual monetary tightening, according senior Fed sources.

“The report also noted that the Fed is just one or two hikes away from a point where major decisions have to be made about the outlook, so while a December rate hike is all but assured, the debate will become more lively beginning at the central bank’s March meeting and certainly by June.”

Following somewhat dovish remarks from several leading Fed officials late last week, that not only helped the Aussie but most other major crosses climb against the greenback on Wednesday.

There was little reaction to news the European Commission deemed Italy’s 2019 budget as a “particularly serious case of non-compliance” of existing EU fiscal rules, potentially leading to the possibility of fines being levied against the Italian government.

The AUD/USD hit a session high of .7277 before easing in the latter parts of the session. With a little under a hour trade on Wednesday the AUD/USD sits at .7260.

AUD/USD Hourly Chart

Turning to the day ahead, it look set to another session dominated by sentiment, positioning and technicals given a light economic calendar and holidays in the US.

On the data docket, Japan will release inflation figures for October at 10.30am AEDT.

Other than that release, there’s nothing of note in Asia, leaving the performance of Chinese markets to dictate the direction of the Aussie.

Later in the session, the ECB will release the minutes of its November policy meeting. Yves Mersch of the ECB and Carolyn Wilkins from the Bank of Canada will also deliver speeches.

“Risk sentiment looks to be the current main driver for both antipodean currencies, thus focus is now likely to shift towards Black Friday, the day after Thanksgiving, which marks the traditional start to the US holiday shopping season,” says Catril at the NAB.

“Amid concerns of a slowing economy and softer equity market, the level of shopping on Friday is likely to be treated as an important gauge of the US consumer state of mind.”