The Australian economic data this week has been strong and the Aussie dollar as a result traded back above 91 cents overnight.
As the RBA told us in its statement after the RBA Board meeting Tuesday, its strength was out of line with historical norms. And it is strength that Governor Glenn Stevens may address when he appears before the House of Representatives’ Standing Committee on Economics in Sydney today.
But even though the RBA says that the Aussie is too high, it seems that for weeks now traders have taken a different view, using every fall as an opportunity to buy.
So what gives?
Annette Beacher, TD Securities’ head of Asia Pacific research, reckons that in a low-return world, Australia’s interest rate position – especially the triple A rated Australian Government bonds – is a big reason why the Aussie is doing so well.
In a note to clients yesterday she noted “Gloomy headlines are always passed around quickly, especially dire predictions of the AUD heading to 60c or so. To achieve such predictions, the AUD needs to be literally dumped on masse.”
Yet she doesn’t think that is going to happen, because:
- The trader market was already short (sold Aussie dollars), and is buying dollars back;
- The cash rate is headed higher as Australian growth heads back to trend; and
- Australian Government bonds offer a substantial pick up to US Treasuries yielding 4% versus Treasuries 2.7%
The RBA Governor will no doubt be asked about the Aussie dollar and give his view today at the parliamentary committee, but if the Australian economy is turning the corner at a time that the US and Europe is once again faltering, trying to keep the Aussie dollar down is going to be a difficult task.
Traders will be watching RBA Governor Glenn Stevens this morning for clues.
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