The Australian dollar keeps on grinding higher


The Australian dollar continued to lift in overnight trade, hitting a one-week high against the US dollar.

Here’s the scoreboard as at 8.05am AEST.

AUD/USD 0.7679 , 0.0004 , 0.05%
AUD/JPY 86.9 , 0.07 , 0.08%
AUD/CNH 5.2115 , 0.0032 , 0.06%
AUD/EUR 0.6727 , 0.0003 , 0.04%
AUD/GBP 0.5954 , -0.0001 , -0.02%
AUD/NZD 1.0571 , 0.0001 , 0.01%
AUD/CAD 0.9788 , 0.0003 , 0.03%

After grinding higher over the course of Asian and European trade, the Aussie found renewed support following remarks from US Federal Reserve chair Janet Yellen that were widely perceived to have been dovish by markets.

“In testimony to the US House Financial Services Committee, Federal Reserve chair Janet Yellen has downplayed prospects for near term rate hikes but she noted that ‘additional gradual rate hikes are likely to be appropriate over the next few years to sustain the economic expansion and return inflation to our 2% goal’,” said Kristina Clifton, economist at the Commonwealth Bank.

“Further, Yellen said the federal funds rate won’t have to rise much further to reach the ‘neutral level’.”

Those remarks had an instant impact, seeing both the US dollar and treasury yields fall.

“Markets seem to have concluded that Fed Chair Janet Yellen just blinked, now less confident that inflation is on track towards the Fed’s 2% target, with obvious implications for what that might mean for Fed policy,” said Ray Attrill, head of FX strategy at the National Australia Bank.

Attrill was surprised by the reaction to Yellen’s testimony, noting that under questioning from lawmakers that much of her commentary was similar to what had been conveyed previously.

Regardless, it put a rocket under the Aussie, seeing the AUD/USD top out at a one-week high. Strong new loan growth in China during June may have also assisted the Aussie overnight.

AUD/USD Hourly Chart

While the Aussie rose against the greenback and most other major crosses, it lost ground against the Canadian dollar following the decision from the Bank of Canada (BoC) to lift official interest rates for the first time since late 2010 at its July monetary policy meeting.

Although such an outcome was widely expected by markets following a raft of hawkish rhetoric from BoC members beforehand, the tone of the accompanying monetary policy statement and press conference held after the decision were widely seen as being more hawkish than what markets had been expecting.

“It was the statement accompanying the quarter point rate rise to 0.75% that moved the CAD up by almost 1.5 cents against the USD,” said Attrill.

“The BoC slightly upgraded its growth forecasts, now seeing the output gap closed by the end of this year. It expects to meet its 2% inflation objective before 2018 is out.

“This has left markets pricing another rate rise by year-end at over 98%.”

It also saw the AUD/CAD hit the lowest level since January.

AUD/CAD Daily Chart

After a busy session on Wednesday, the economic calendar once again slows to a crawl on Thursday with very little on the radar for traders to digest, especially in Asia.

Chinese trade figures for June will be released at some point after midday AEDT (there is no scheduled release time) although, if recent history is to repeat, it’ll likely come and go without too much fuss. There’s simply been no interest in any Chinese economic data recently.

There’s nothing else released across the region hinting that the performance from the USD/JPY and Chinese commodity futures will once again be influential on the movements in the Aussie.

Later in the session, markets will get final CPI figures from Germany, France and Spain for June while in the US initial jobless claims and final producer price data for June will also be released.

On the central bank front Janet Yellen will once again be in action — this time to the US Senate — while Charles Evans and Lael Brainard, FOMC members, are also scheduled to speak.