One of the most important strands of the structural transition in Australia’s economy has been the falling value of the dollar against the greenback.
But what seemed for months an inexorable slide appears to have been put on hold. The Aussie has been on a quiet tear this month and rose again today – a short time ago it was trading at its highest level since July 29th at over US9225c.
A few things are driving this. Concerns about weakening demand from China have been easing, the RBA’s rate cuts are likely to be on hold for a while, and there’s increasingly a view that if the US Fed decides to start scaling back its bond-buying program it will be less dramatic than anticipated earlier in the year.
Here’s Greg McKenna from Lighthouse Securities:
The Aussie Dollar is up 0.5% this so far today and appears to have finally found some friends in the global trading and investing landscape. What seems to be driving this renewed optimism are suggestions of globally synchronised growth as the emergence of growth not just in the US but in Europe, the UK and maybe even China suggests that traders got a little too pessimistic on the prospects for the Australian Dollar, in the near term.
Sure, the concerns remain about Australia’s transition from mining boom to a not-so-booming economy remain and certainly the RBA seems to have a bias to cut as the local domestic economy struggles to make the transition and Australians are still worried about debt.
But that’s all baked into the cake if today’s price action is anything to go by.
It’s good news that has caught traders’ eyes and with the market still structurally short as we saw in the CFTC positioning report over the weekend the path of least resistance seems to be up.
The RBA minutes tomorrow and the Fed’s minutes later in the week will be key drivers of further movement this week and either could trigger a resumption of the slide. The market expects the Australian dollar to keep falling in the longer term – good news for many parts of the economy who need the shot in the arm – but for the moment, the slide has stalled.
Disclosure: Greg McKenna is an active trader of Foreign Exchange and is currently short Aussie.