The Australian dollar continues to strengthen

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The Australian dollar rose strongly overnight, supported by strength in commodity prices, declining US and European bond yields, and quarter-end market flows.

Here’s the Aussie scoreboard as at 7.40am AEDT.

  • AUD/USD 0.7666 , 0.0033 , 0.43%
  • AUD/JPY 85.1 , 0.28 , 0.33%
  • AUD/CNH 5.2642 , 0.0192 , 0.37%
  • AUD/EUR 0.7120 , 0.0062 , 0.88%
  • AUD/GBP 0.6163 , 0.0033 , 0.54%
  • AUD/NZD 1.0892 , 0.0013 , 0.12%

As the scoreboard reveals, the Aussie was supported not only against the US dollar, but also against the major crosses, particularly the euro.

The reason for the Aussie’s gain against the latter was entirely driven by a report from Reuters, citing unnamed sources within the ECB, that markets had misread what the bank was trying to communicate following the conclusion of its policy meeting earlier this month.

“We wanted to communicate reduced tail risk but the market took it as a step to the exit,” one source told Reuters. “The message was way overinterpreted.”

They also said that policymakers were wary of making any new change to their policy message when the ECB next meets in April given the potential to send European bond yields surging even higher.

That report saw European bond yields drop across the board, undermining the euro as a consequence. It also led to a decline in US bond yields despite the release of further strong economic data and broadly hawkish remarks from several US FOMC members overnight.

Given its strength in the March quarter, up over 6% against the US dollar and 3.5% in trade-weighted terms, quarter-end window dressing may have also been a supportive factor for the Aussie overnight.

AUD/USD Hourly Chart

Continuing the theme seen earlier in the week, the data calendar in Asia is yet again bare in terms of potential market moving events.

In Australia, HIA new home sales and quarterly job vacancy data from the ABS will both be released but neither will be of interest to traders.

Given the dearth of data releases, the Aussie will likely be driven by broader investor sentiment, movements in Chinese commodity futures and US bond yields along, along with those in the USD/JPY.

Quarter-end flows may also be a factor to consider.

After a slow start to the session, the economic calendar picks up later in the day with the release of inflation reports from Spain and Germany, along with Eurozone consumer confidence.

In the US, markets will receive the third release of US Q4 GDP and weekly jobless claims figures. On the Fed front, Mester, Kaplan, Williams and Dudley will also deliver speeches.

“For choice, Dudley’s speech could be interesting as he will be talking on financial conditions and monetary policy,” said Rodrigo Catril, currency strategist at the National Australia Bank.

Bill Dudley is the New York Fed president, and is a permanent voter on the Federal Reserve FOMC. His speech will be delivered at 7.30am AEDT Friday Morning.

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