After rallying strongly following yesterday’s impressive GDP report, the Australian dollar continued to rocket higher in overnight trade, leaving it on track to close at the highest level this year.
As at 7.45am AEDT, the AUD/USD buys .7290, up 1.62% for the session. Behind the 1.83% gain registered on February 3, it is currently on track to log its largest percentage gain since June 2015.
It currently sits at the highest level seen since January 4, and has rallied close to 7% from the six-year low of .6824 struck on January 15.
Along with the the strong GDP report, Joseph Capurso, currency strategist at the CBA, believes a softer US dollar and widening interest rate differentials between Australia and the US helped to propel the Aussie higher in European and US trade.
“AUD continues to lift against most currencies, particularly the USD. Most of the overnight lift in AUD/USD simply reflected a softer USD,” wrote Capurso in his Thursday morning note. “Also helping the AUD against most currencies are higher Australian 2 year swap rates (+6bps yesterday) because of the solid increase in Australian Q4 GDP. The Australia-US 2 year swap spread has increased to 116bps from as low as 106bps a few days ago.”
“We expect market pricing for a May RBA rate cut to continue to be taken back. This, and the improved global sentiment, should support front-end Australian swap rates and the AUD.”
Alongside the steepening in Australia’s interest rate curve, another 2% rally in the iron ore price overnight, taking it back to levels last seen in October last year, not doubt helped to underpin the Aussie’s gains.
Looking ahead, Capurso suggests that upcoming US economic data, rather than domestic data releases such as retail sales tomorrow, will likely drive movements in the Aussie.
“The US data and USD reaction is likely to be a more important driver of the AUD,” says Capurso.
“We see downside risks to the US services ISM and non-farm payrolls that should help push AUD to a new year-to-date high by the end of the week.”
Looking ahead to Thursday’s Asian trading session, markets will receive a raft of services PMI figures for February, including from Australia, Japan and China, along with Australian trade figures for January.
Here’s the current Australian Dollar scoreboard.
- AUD/USD 0.7290 , 0.0116 , 1.62%
- AUD/JPY 82.66 , 0.89 , 1.09%
- AUD/CNH 4.7731 , 0.075 , 1.60%
- AUD/EUR 0.6707 , 0.0107 , 1.62%
- AUD/GBP 0.5179 , 0.0037 , 0.72%
- AUD/NZD 1.0928 , 0.0109 , 1.01%