The Australian dollar just logged its largest gain in nearly two years

Scott Barbour/Getty Images

The Australian dollar surged back above the 77 cent level overnight, propelled higher by renewed US dollar weakness, short covering from traders and strength in commodity prices.

Here’s the early prices showing the Aussie is not only ripping higher against the US dollar but also against the crosses.

  • AUD/USD 0.7704 , 0.0146 , 1.93%
  • AUD/JPY 87.38 , 0.67 , 0.77%
  • AUD/CNH 5.2772 , 0.062 , 1.19%
  • AUD/EUR 0.7182 , 0.0056 , 0.79%
  • AUD/GBP 0.6263 , 0.0045 , 0.72%
  • AUD/NZD 1.0937 , 0.0018 , 0.16%

The gain in the AUD/USD was the largest in percentage terms since June 2, 2015.

The main catalyst behind the Aussie’s strength has been a sharp decline in the US dollar, a move that came despite the US Federal Reserve lifting interest rates by 25 basis points to 0.75% to 1% at its March FOMC meeting.

With markets all but expecting a rate rise to occur thanks to several weeks of hawkish commentary from Fed officials, it was the release of the FOMC’s economic projections, particularly member expectations for the outlook for the Fed fund rate, that drove the US dollar lower, with minimal changes disappointing traders who had expected the Fed to signal a more aggressive rate tightening schedule at this meeting.

It still sees only three rate hikes this year, including today’s increase, and three again in 2018, scuppering expectations that rates might rise quicker than anticipated.

“The Fed wasn’t dovish per se, but with near record short speculative positioning in the US interest rate futures markets, and an expectation that if the Fed was going to do anything today with the ‘dots’ it would be to ratchet three up to four for either this year or next, markets really only had one way to react,” said Ray Attrill, global co-head of FX strategy at the National Australia Bank.

That drove US interest rate yields lower, and the US dollar followed suit.

Early exit polls from the Dutch federal election showing Geert Wilders’ Freedom Party (PVV) performed below expectations has also helped to boost risk sentiment, and with it the Aussie.

“The worse the PVV is seen to be faring, the more this can play with the grain of the post-Fed rally in the Euro,” said Attrill.

As seen in the 5-minute chart below, all of that news put a rocket under the AUD/USD.

AUD/USD 5-Minute Chart

After a whirlwind few hours overnight, the economic events calendar in Asia is also stacked with potential market-moving events, with major economic data from Australia and a monetary policy decision from the Bank of Japan the undisputed headline acts.

In Australia, the ABS will release Australia’s February jobs report at 11.30am AEDT. Markets expect employment to increase by 16,500, leaving the unemployment rate steady at 5.6%.

For those looking for further information on this release, this 10-second guide will bring you up to speed.

Regionally, all eyes will be on the Bank of Japan (BoJ) as it delivers its March monetary policy decision. While no change is expected, markets are well aware that the bank can and does surprise when least expected. It’s expected to arrive any time after 1pm AEDT.

New Zealand Q4 GDP will also be released at 8.45am AEDT, although it’s unlikely to be overly market-moving for the Aussie.

Later in the session, the Bank of England will hand down its latest monetary policy decision. Like the BoJ before it, no change is expected.

In the US, weekly jobless claims, Philly Fed manufacturing survey, housing starts and JOLTS job report are all scheduled for release.

The US government is also expected to deliver an outline of its budget ambitions at some point during the session, creating a wildcard for traders given its implications for monetary policy.

“At this stage we don’t know whether the news will have come out overnight to greet us this time tomorrow, or will only emerge during our Friday,” said Attrill.

“Either way, we expect it will be very light on detail.”

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