The Australian dollar's rally stalled overnight

Photo by Stephen Dunn/Getty Images

Having hit a high of .7342 immediately after the release of Australia’s Q3 GDP report on Wednesday, the Australian dollar made a slow and steady decline in overnight trade, eventually falling to as low as .7294 before bouncing modestly into the US close.

As as 8.30am AEDT, the AUD/USD currently buys .7303, down fractionally on Wednesday’s opening level of .7320.

AUD/USD 5-minute chart Source:

According to Elias Haddad, director of currency and international economics at the CBA, hawkish remarks from US Federal Chair Janet Yellen, renewed US dollar strength and further weakness in commodity prices weighed on the Aussie overnight.

“AUD/USD dipped overnight on USD strength and lower commodity prices,” wrote Haddad in his morning note.

“The USD recovered and made a new cyclical high during the overnight session on encouraging US labour market activity and a speech by FOMC Chair Janet Yellen. The November increase in ADP employment (up by 217,000) points to strong US non-farm payrolls gains of over 200,000 on Friday, reinforcing the case for a December Fed funds rate hike.”

Looking ahead to Thursday’s trading session, Haddad suggests that market attention will be on the release of Australia’s October trade balance at 11.30am AEDT.

“Today the focus in Australia will be on October trade balance but we doubt it will generate much AUD volatility.”

While he’s not expecting much from the trade balance to sway the Aussie one way or the other, Haddad expects over the medium-term the currency is likely to come under renewed pressure.

“AUD/USD is likely to remain under downside pressure because it has already overshot the level implied by iron ore prices, a further upward revision to Australian rate expectations will be limited considering that Australian business investment remains a significant drag on the economy and the Fed is on track to lift rates in December which will support the USD.”

Overnight the benchmark spot iron ore price fell by a further $1.11, or 2.63%, to $41.13 a tonne according to Metal Bulletin, extending its losses this year to 42.3%.

Beyond the trade release, markets will also have to contend with the release of the AIG services PMI gauge and new home sales in Australia, services PMI gauges from China and Japan along with revised Q3 GDP from South Korea.

Later this evening, the ECB’s December interest rate decision and press conference from ECB president Mario Draghi, scheduled for 11.45pm AEDT and 12.30am AEDT respectively, is also likely to generate volatility in currency markets, including for the Aussie.

Haddad expects the ECB to announce a mix of measures, such as a cut the deposit rate by 15 to 20bps, an additional €540 billion worth of asset purchases (via a 9 month extension of the current €60 billion/month program to June 2017) and/or a lift in the pace of monthly purchases from €60 billion/month to €70-80 billion/month.

Like in Asia, a raft of services PMI gauges from the Eurozone, US and UK will also be released.

Here’s the current Aussie dollar scoreboard.

  • AUD/USD 0.7303 , -0.0018 , -0.25%
  • AUD/JPY 89.99 , 0.05 , 0.06%
  • AUD/CNY 4.6730 , -0.0113 , -0.24%
  • AUD/EUR 0.6881 , -0.0005 , -0.07%
  • AUD/GBP 0.4887 , 0.0033 , 0.68%
  • AUD/NZD 1.1000 , 0.0045 , 0.41%

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