The Aussie dollar rally has struck turbulence

Yuli Seperi/Getty ImagesReversal.
  • The Australian dollar gave up early gains on Wednesday as strong US data prompted buying in the greenback.
  • The New Zealand dollar surged as the RBNZ failed to meet dovish market expectations.
  • It’s a busy day for economic data on Thursday. US-Sino trade negotiations also ramp up, creating the potential for headline risk.

The Australian dollar took a round trip on Wednesday, rising strongly in Asia before giving back all of its gains towards the close.

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

AUD/USD 0.7088 , -0.0005 , -0.07%
AUD/JPY 78.67 , 0.31 , 0.40%
AUD/CNH 4.8083 , 0.0045 , 0.09%
AUD/EUR 0.6290 , 0.0028 , 0.45%
AUD/GBP 0.5516 , 0.0015 , 0.27%
AUD/NZD 1.0428 , -0.01 , -0.95%
AUD/CAD 0.9394 , 0.0004 , 0.04%

After opening the session at .7093, the AUD/USD jumped to as high as .7136 in Asian trade, riding on the coattails of the New Zealand dollar that surged following the release of the Reserve Bank of New Zealand’s (RBNZ) February monetary policy decision.

While the RBNZ lowered its GDP growth and inflation forecasts, and pushed back when it expects its cash rate will increase to the first quarter of 2021, the RBNZ retained a neutral bias on the outlook for interest rates, disappointing markets who were expecting the bank to shift to a more dovish stance like other major central banks this year.

The New Zealand dollar jumped as much as 1.5% against the dollar. As is so often the case whenever Australian or New Zealand data or central bank commentary is released, the Australian dollar mirrored the move in the Kiwi, albeit by a far smaller degree.

A suspicious late surge in Chinese stocks, along with a recovery in Australian consumer sentiment in February after an ugly plunge in January, also helped at the margin to support the Aussie’s push higher.

However, the move quickly ran out of puff in European and North American trade, seeing the Aussie’s gains slowly whittled away as the greenback regained its mojo.

Richard Grace, Chief Currency Strategist at the Commonwealth Bank, said the recovery in the US dollar index (DXY) after logging its first decline in 10 sessions on Tuesday was helped by firm US economic data and weak data out of Europe.

“[The] USD strengthened after the US January wage data and CPI proved stronger than expected, lifting 10-year treasury yields two basis points to 2.70% and US two-year treasury yields three basis points to 2.53%,” he said.

“The main driver of the lift in treasury yields and the USD was a lift in real average weekly and real average hourly earnings, which surged to their highest level in more than three years and two years respectively at 1.9% and 1.7%.

“The stronger US wage data contrasted with the continued weaker Eurozone industrial production data, driving EUR/USD 0.6% lower to 1.1267 and the bottom of its recent twelve month trading range.”

The euro is the largest component in the DXY, meaning its movements are often influential on broader movements in the USD.

The late strength in the DXY eventually saw the AUD/USD drift back below the .71000 level towards the close.

Investing.comAUD/USD Hourly Chart

Against the other major crosses, the Aussie gained against the Japanese yen on continued speculation of a positive outcome from US-Sino trade negotiations currently underway in Beijing.

Looking ahead, Thursday will be a busy day for traders with a raft of major data releases scheduled throughout the session.

In Asia, Chinese trade data for January is the headline act. There’s no set time for the release but it usually arrives after 1pm AEDT. Chinese monetary growth statistics could also arrive at any point in the next couple of days.

Japanese Q4 GDP data will also be released at 10.50am AEDT.

With senior officials from both sides now joining in trade talks in Beijing, there’s also considerable headline risk on the state of negotiations. It must be remembered that a lot of good news is already priced in for the expected outcome.

Later in the session, other highlights include Q4 GDP from the Eurozone and Germany, Eurozone employment along with retail sales, PPI and business inventories from the United States.

On the central bank speakers calendar, Harker from the FOMC is in action.

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