The Australian dollar traded back above 72 cents last night after a combination of US dollar selling and a little more interest in the Aussie saw the buyers back in control.
The Aussie rally has been remarkable this week when you consider that iron ore has continued to crash, that copper marked another 6-year low and is now down under $2.10 a pound, and oil is sitting just above the $40 a barrel level.
While the rally is partly about the US dollar, for the most part it seems that investors are re-appraising the universal bearishness that they held for the Aussie dollar just a few weeks ago. That’s if the research and comment slipping through my inbox and Twitter feed is any indication.
Change, it appears, is afoot.
It all began a couple of weeks back when Richard Franulovich, Westpac’s New York-based currency strategist pointed out that real money had reversed its previous position in the Aussie and was back buying.
The chart highlights the “eye-catching improvement in appetite for AUD” Franulovich noted in his report.
Yesterday, Kelvin Tan, a real money manager himself as the chief investment officer at UBS Wealth in Singapore, reflected this change, with Bloomberg reporting that he said interest had come back into the Aussie because it has stabilised. And even though there was still some downside risk, “as an alternative to the local currencies in the region, it’s not too bad to consider the Aussie”.
Tan also said that the view was growing that the RBA won’t be cutting rates and that was also supporting the Aussie dollar.
In a world of super low interest rates, that’s an important driver and any notion that the RBA is moving closer toward a tightening will give further support to the Aussie.
Already the Bloomberg Survey shows Soc Gen and BT are looking for rate rises in 2016, local economist Stephen Koukoulos has joined that chorus in the past week, and there are reports this morning that ABN Amro has now joined the rate hike party.
So the Aussie is bid, and it’s back near 72 cents against the USD. Equally though, EURAUD has fallen to a 3-month low below 1.50 and GBPAUD is showing signs that 2.24 (yes, every pound bought 2.24 Aussie dollars) is the high.
But not everyone is convinced.
It’s fair to say most forecasts, and forecasters, still see the Aussie dollar slipping below 70 cents. This morning Elias Haddad, director of Currency and International Economics at the CBA in Sydney, wrote that even though the Aussie can rally into the 0.7200/0.7250 region, “the fundamental downtrend in AUD/USD (and NZD/USD) is intact largely driven by falling commodity prices and the outlook for a stronger USD”.
Yet it seems Aussie dollar traders are starting to get a bit twitchy for a topside run through the top of Haddad’s range. If it comes, and it’s an “if”, that break would take the Aussie up and through the very same 1-year downtrend that pulled it up just under 74 cents.
It’s a big level. Traders – both bulls and bears – are watching.
Here’s the chart:
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