What’s up with the Aussie dollar?
Or more correctly, why is the Aussie dollar up overnight when the euro fell, sterling dropped, US 10-year Treasuries fell to 2.6% and Gold rallied as investors tried to find a safe place for their cash?
That’s not how the Aussie dollar is supposed to react. For most of the post-float era since 1983 the Aussie has fallen heavily every time there was a global crisis. Investors’ initial instinct all around the world was to simply get out of dodge and sell Aussie dollars.
In 2008, during the dark days of the financial turmoil that accompanied the collapse of Lehman Brothers, the Aussie dollar fell to 0.5960 from the high 90 cent region.
But yesterday, after a gap lower at the open of trade, the Aussie found support under 89 cents rallied, retested support and has rallied again to sit at 0.8930 to be the only major traded currency to actually gain ground on the US dollar over the past 24 hours.
It’s not a huge move but perhaps the Aussie is playing the role it did during the GFC when it rallied above 1.10.
Global investors just might be looking for any port in a storm and they know that the Aussie dollar has been a safe harbour for them before.
Disclaimer: Greg McKenna is an active currency trader who is short Aussie dollars and fascinated by the price action over the past 24 hours.