The Australian dollar jumped overnight

Photo: Oleg Nikishin/Getty Images

The Australian dollar – aided by short covering before this week’s highly anticipated US Federal Reserve FOMC policy meeting and a touch of Australian politics – put in a stellar performance overnight, rising to a fresh two-week high of .7151.

As of 8.30am AEST the AUD/USD currently buys .7131, the highest level since September 1.

While the change of political leadership in Australia may have contributed modestly to the bounce – something that saw the Aussie outperform all of its major trading peers – continued short covering was the likely catalyst behind its overnight performance.

That’s certainly the view conveyed by market watchers this morning with consensus near unanimous that the leadership change to Malcolm Turnbull had little to do with the price action witnessed overnight.

“AUD is the top performing major currency versus the USD during the overnight session following Australia’s change in political leadership”, said Elias Haddad, senior currency strategist at the CBA.

“Nonetheless, Australian political developments are unlikely to have long lasting implications on the AUD. The Australian economy is currently being weighed down by slowing major trading partner growth, a large fall in commodity prices/incomes, and the ongoing unwind of the mining investment boom. A change in political leadership cannot alter the global economic outlook. Moreover, a shift in leadership is unlikely to impact the outlook for monetary policy, which is controlled independently by the RBA”.

That view was replicated by Raiko Shareef, strategist at Bank of New Zealand, who wrote “AUD’s gains overnight are more a result of a paring of short positions, ahead of the FOMC. Positioning data shows net AUD shorts are at extreme levels, consistent with anecdotes that overseas investors are extremely pessimistic on the Australian economy”.

The chart below, supplied by ANZ, reveals CFTC net Australian dollar speculative positioning as of the end of last week. As you can see, Aussie dollar short positions sit at extreme levels at present, something that has been a reliable lead indicator for short-term Australian dollar strength in recent years.

In what is an even more concise view than that offered by Haddad and Shareef, Emma Lawson, senior currency strategist at NAB, had this to say on the change of Australian political leadership (our emphasis added).

“Australia changed its Prime Minister yesterday, with Malcolm Turnbull taking over from Tony Abbott. This has no implications for markets.”

Looking ahead, market attention today will be on the release of the RBA’s September monetary policy meeting minutes at 11.30am. While it will be closely scrutinised, it would be a surprise to markets if anything market moving was to come from the document.

On the regional front, the performance of China’s stock market – something that was influential on the Australian dollar’s movements late yesterday afternoon – along with the Bank of Japan monetary policy decision for September released later this afternoon, may also act as catalysts to drive movements in the Australian dollar today.

The full Aussie dollar scoreboard is found below.

  • AUD/USD 0.7131 , -0.0004 , -0.06%
  • AUD/JPY 85.76 , -0.02 , -0.02%
  • AUD/CNY 4.5399 , -0.0025 , -0.06%
  • AUD/EUR 0.6302 , 0.0001 , 0.02%
  • AUD/GBP 0.4624 , -0.0001 , -0.02%
  • AUD/NZD 1.1264 , 0.0005 , 0.04%

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