The Australian dollar fell heavily overnight, weighed down by broad US dollar strength before tomorrow mornings FOMC rate decision, selling against the New Zealand dollar and remarks from RBA governor Glenn Stevens.
As at 8.20am AEDT, the AUD/USD currently buys .7196, 0.62% below Tuesday’s opening level.
Here’s Elias Haddad, senior currency strategist at the CBA, explanation of the price action seen overnight.
AUD/USD fell overnight on USD strength. Comments from RBA Governor Stevens in his usual pre-Christmas interview to the AFR also undermined AUD. When asked explicitly about the AUD and would he like it lower, Stevens stated that “it has been adjusting. Our story is it’s adjusting, and if it needs to adjust lower, I expect it will”. And when pressed on the divergence between the AUD and commodity prices recently, Stevens notes that “commodity prices are still falling, so it is possible that further adjustment will occur. I think that is possible”. On policy Stevens repeated the board’s view that “inflation is sufficiently low that, if it makes sense to ease a bit further to help the economy, then we can”.
A strong GlobalDairyTrade auction, seeing the Aussie sold down against the Kiwi, also contributed to the overnight weakness.
“AUD/NZD dipped to near its lowest levels since the start of November after prices at the latest GlobalDairyTrade (GDT) auction were up slightly. The GDT index rose 1.9% (the second straight price rise) and whole milk powder (WMP) prices increased 1.8%,” wrote Haddad.
Like iron ore to Australia, dairy prices – particularly for whole milk powder – are highly influential on movements in the New Zealand dollar.
Looking ahead to today’s Asian trading session, markets are likely to revert to a holding pattern before tomorrow morning’s key US FOMC rate decision, an event that is likely to see US interest rates increased for the first time since June 2006. The FOMC decision will be announced at 6am AEDT, along with updated economic forecasts. Fed chair Janet Yellen will then hold a scheduled press conference at 6.30am AEDT.
In the lead up to that event, the regional calendar is largely bare, although the latest flash manufacturing PMI report from Japan for December will be released at 12.35pm AEDT.
Looking further ahead, markets will receive flash manufacturing PMI reports from the US, Eurozone, Germany and France, UK unemployment while in the US building approvals, housing starts and industrial production figures will also be released.
Here’s the current Aussie dollar scoreboard.
- AUD/USD 0.7196 , -0.0045 , -0.62%
- AUD/JPY 87.54 , -0.13 , -0.15%
- AUD/CNY 4.6486 , -0.0302 , -0.65%
- AUD/EUR 0.6584 , -0.0005 , -0.08%
- AUD/GBP 0.4782 , -0.0001 , -0.02%
- AUD/NZD 1.0625 , -0.0085 , -0.79%