The Australian dollar is rallying as recession talk eases

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The Australian dollar rallied hard in overnight trade against both the US dollar and the crosses, extending the move that began in Asian trade.

And the move came despite another hefty fall in iron ore markets, along with weakness in base metal prices.

Richard Grace, chief currency strategist at the Commonwealth Bank, said that the move was likely prompted by easing concerns that Australia could record a negative GDP reading in the March quarter, along with strong gains in Asian currencies.

“Despite falls in iron ore and base metal commodity prices overnight, participants were encouraged by non-Japan Asian currencies lifting to a fresh eight-month high and yesterday’s Australian Q1 inventory data, which suggests Australian Q1 GDP growth will be stronger than earlier expected,” he said in a note released this morning.

“Some analysts were forecasting a contraction in GDP growth before the inventory data was released, and we have revised up our expectation that Q1 GDP will expand by 0.3% from an initial forecast of flat growth.”

It’s also likely that positioning adjustments ahead of some key central bank events this week — including today’s RBA monetary policy meeting — assisted the Aussie’s move higher.

Here’s the scoreboard as at 8am AEST.

AUD/USD 0.7482 , -0.0001 , -0.01%
AUD/JPY 82.68 , 0.05 , 0.06%
AUD/CNH 5.0737 , -0.0002 , 0.00%
AUD/EUR 0.6648 , 0.0001 , 0.02%
AUD/GBP 0.5798 , -0.0001 , -0.02%
AUD/NZD 1.0482 , 0.0002 , 0.02%

Turning to Tuesday trade in Asia, local Australian economic data, along with the RBA’s interest rate meeting, are likely to dominate the session.

At 9.30am AEST, ANZ will release its latest weekly Australian consumer confidence survey. That will be followed by the release of Australia’s Q1 Balance of Payments report and government spending figures, also for the March quarter.

The latter two reports will help to firm up expectations for Australia’s Q1 GDP report released on Wednesday, and have the potential to move the Australian dollar, says the CBA’s Grace.

“We anticipate that Australia’s Q1 current account balance is set to record its first surplus since 1975 at $0.2bn against consensus expectation of a $0.5bn deficit,” he says.

“A current account surplus is extremely supportive of the AUD and will work behind the scenes to support AUD on a higher valuation basis. Australia’s narrowing interest rate differential to the US become less important if the Australia is running a current account deficit or a very small deficit.”

Within the Balance of Payments report, the ABS will also release the contribution of net exports to Australian Q1 GDP, which along with government spending figures — accounting for around 20% of the entire Australian economy — will prove influential on the Aussie.

Net exports are expected to lop 0.4 percentage points off headline GDP, while government spending is expected to increase modestly, providing some offset.

After the last of the GDP inputs are released, all attention will then turn to the release of the RBA’s June interest rate decision at 2.30pm AEST.

No change is expected, meaning all of the focus will be on the bank’s monetary policy statement. This 10-second guide has further information on what to expect.

Outside of Australia, the regional data calendar is devoid of market-moving events.

Later in the session, markets will receive investor sentiment and retail sales figures from the eurozone while in the US the monthly JOLTS jobs survey and weekly API crude inventory data will also be in focus.

Here’s the AUD/USD hourly chart.

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