The Australian dollar bounced overnight as US stocks surged

Photo by Don Bartletti/Los Angeles Times via Getty Images

The Australian dollar lifted overnight, riding on the coattails of a recovery in risk assets that was led by US stocks.

The recovery in the Aussie, up 1% from the lows seen in European trade, was driven by a speech from Lael Brainard, a voting member on the US Fed’s FOMC, that hosed down expectations of a near-term interest rate in the US.

“Speaking on the economic outlook in Chicago, Brainard counselled continued prudence in the withdrawal of monetary policy,” noted David de Garis, senior economist at the NAB, in his morning note. “It was a market-moving address but the impact was the reverse of what the market had feared at the end of last week.”

While US stocks certainly reacted to Brainard’s speech, helping to recoup much of the losses seen on Friday, the move in the Aussie was modest in comparison, mirroring similar moves in Fed fund rate futures and US treasury markets. They barely budged, suggesting that it was not near-term Fed expectations that drove the huge selloff in risk assets seen on Friday.

Most of the action was concentrated in stocks, helping to lift risk assets, including the Aussie, modestly higher during the session.

In the end the AUD/USD finished Monday trade buying .7563, up around a quarter of a cent from Friday’s closing level.

AUD/USD 5-Minute Chart

While the Aussie was seemingly driven by expectations for US interest rates overnight, that will change today with the release of major economic data both at home and abroad.

“There is plenty of event risk coming up in the APAC session today,” says de Garis.

“First up at 8.30am AEST we have a speech from the RBA’s Chris Kent. While there is no specific title as yet on the RBA’s web site, we understand is apparently speaking on the evolving transition of the post-mining boom economy.

“Then at 11.30am AEST comes the NAB Business Survey for August,” he adds.

Given poor readings on activity levels across Australia’s services, construction and manufacturing sectors in August, this survey will likely garner more attention that usual when it is released later in the session.

On the regional data front, all attention will be on the release of Chinese industrial output, retail sales and fixed asset investment figure for August, due out at midday AEST.

“Last week’s trade data would suggest today’s release should not disappoint,” says de Garis. “They might even surprise a little on the high side.”

Unless the data is either incredibly strong or worryingly weak, recent history suggests that the market reaction will be modest if the data comes in roughly in line with expectations.

While there is a plethora of second-tier data scheduled both in Europe and the US, none stands out as a potential market mover for the Aussie.

Here’s the Australian dollar scoreboard as at 8am AEST.

  • AUD/USD 0.7562 , -0.0001 , -0.01%
  • AUD/JPY 77.09 , 0.07 , 0.09%
  • AUD/CNH 5.0591 , 0.0037 , 0.07%
  • AUD/EUR 0.6730 , -0.0001 , -0.01%
  • AUD/GBP 0.5669 , 0.0001 , 0.02%
  • AUD/NZD 1.0286 , 0.0002 , 0.02%