The Australian dollar soared overnight, powered by the twin factors of broad based US dollar weakness and, in all likelihood, speculation of another bumper Australian GDP report arriving later in the session.
The AUD/USD finished Tuesday trade buying .7686, up a whopping 1.43% from Monday. It was the highest close since August 16, and the largest one-day percentage gain since June 23, the day before the UK Brexit referendum.
It currently buys .7680 as at 7.35am in Sydney.
Helping to explain the scale of the move seen on Tuesday, US economic data released overnight came in far weaker than expected, seemingly scuttling the chance of rate hike from the US Fed later in the month.
“USD slumped across the board as market participants pared back the chances of a September Fed rate hike, following a much weaker-than-expected US August ISM non-manufacturing (services) index, and a decline in the Fed’s 19 component Labour Market Conditions Index in August,” said Richard Grace, chief currency strategist at the Commonwealth Bank.
The ISM services index fell from 55.5 to 51.4 in August, leaving it at the lowest level seen since February 2010.
“The market is now pricing only a 24% chance of a 21 September Fed rate hike, down from 32% yesterday. US two-year and ten-year bond yields declined 6bpts to 7bpts to 0.72% and 1.53% respectively,” says Grace
“The USD is likely to further decline as September Fed rate expectations further recede.”
Alongside broad based US dollar weakness, the other factor helping to drive the Aussie higher is speculation that another strong GDP report will arrive on Wednesday.
“The market has also taken a rosier view of today’s forthcoming Australia Q2 GDP report, which is likely to show the economy expanded 0.5% (QoQ) to remain at an above-trend annual growth rate of 3.4%,” notes Grace.
“This should further support a lift in AUD/USD to 0.7700.”
The median economist forecast centres upon a quarterly increase in real GDP of 0.6%, leaving the year-on-year expansion at a four-year high of 3.3%. You can find more information on the release here.
Outside of Australia’s Q2 GDP report, markets will also receive Chinese FX reserves data for August at some point today, likely later in the session, while in the US the monthly JOLTS job report for July will be released later this evening.
The US Federal Reserve’s Beige Book on economic conditions will also arrive in the early hours of tomorrow morning.
Here’s the current Aussie dollar scoreboard as at 7.35am AEST.
- AUD/USD 0.7680 , -0.0006 , -0.08%
- AUD/JPY 78.37 , -0.01 , -0.01%
- AUD/CNH 5.1249 , -0.0047 , -0.09%
- AUD/EUR 0.6825 , -0.0002 , -0.03%
- AUD/GBP 0.5719 , 0.0001 , 0.02%
- AUD/NZD 1.0355 , -0.0005 , -0.05%
Business Insider Emails & Alerts
Site highlights each day to your inbox.