The Australian dollar bounces as commodity prices rally

Photo by Ronald Martinez/Getty Images

Buoyed by a sharp turnaround in the crude oil price, a bounce in iron ore and general US dollar weakness, at least against high-yielding currencies, the Australian dollar rocketed higher in overnight trade, hitting a high of .7269 before easing into the New York close.

As at 8.30am AEDT, the AUD/USD currently buys .7233, recovering around half the losses seen on Friday.

AUD/USD 5-minute chart Source:

According to David de Garis, senior economist at the NAB, it was a choppy session for not only the Aussie but other asset classes.

“Initially it was a choppy night for markets, carrying on with last week’s risk-off mood with oil initially testing new lows and European stocks heavy,” wrote de Garis in his morning note.

“A measure of calm returned, oil bounced off its lows, as did the Aussie dollar which is trading this morning closer to 0.7250. Iron ore prices broke rose for once, up $US0.76, or 1.9% to $US39.06. And so, the AUD sits atop the FX overnight leader board. US bond yields moved back up.

Perhaps explaining the volatile price action – something that seemingly came out of nothing – de Garis notes that “there was little to no data of any consequence last night”.

Looking ahead to Tuesday’s Asian trading session, de Garis expects most interest today will fall on the release of the RBA December monetary policy minutes at 11.30am AEDT, along with the government’s mid year economic and fiscal outlook (MYEFO) at 1pm AEDT.

“The RBA minutes for December should confirm the Bank’s observations of the trend improvement in the non-mining economy; we expect the Minutes to do likewise,” he notes.

On the government’s MYEFO statement, de Garis, like others, expects the underlying cash deficit for 2015/16 will grow from the $35.1 billion estimate offered in the federal budget in May.

Here’s what he’s looking for.

For MYEFO, there’ll be initial headline focus on the revised mid-year estimate of the Underlying Cash Balance (UCB) for 2015-16 and the profile beyond then. Amongst the re-jigging of the economic forecasts, there will be some focus on a likely downward revision to the terms of trade and any re-thinking of how the domestic economic improvement is playing out for the economy and the Budget. The median economist forecast is expecting to see the May $35.1bn deficit to be revised to $38bn. We expect less of a deterioration, to $36.5 billion. Also look out for the deficits in the out-years and the path back to surplus, the incorporation of slower potential growth assumption of 2¾% and any follow-up comments from ratings agencies. From a qualitative perspective, we’ll be interested to observe what new assumptions are embodied for the price of iron ore and the terms of trade but also whether the pickup in the non-mining economy is as yet showing up in higher tax revenues, with slower wages growth also coming with higher employment levels.

Alongside the RBA minutes and MYEFO release, markets will also receive new motor vehicle sales and the September quarter house price index from the ABS. The latest weekly ANZ-Roy Morgan consumer confidence index will also be released. None are likely to be market moving.

Later in the session markets will also receive CPI figures from the US and UK along with the Empire state manufacturing survey and NAHB housing market index from the US.

Here’s the current Aussie dollar scoreboard.

  • AUD/USD 0.7233 , 0.0047 , 0.65%
  • AUD/JPY 87.49 , 0.46 , 0.53%
  • AUD/CNY 4.6717 , 0.0243 , 0.52%
  • AUD/EUR 0.6581 , 0.0027 , 0.41%
  • AUD/GBP 0.4778 , 0.0047 , 0.99%
  • AUD/NZD 1.0693 , -0.0015 , -0.14%

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