The Aussie traded down below US89c last Friday night but opened the week more than half a cent higher on the back of Chinese data over the weekend.
That’s not much of a bounce from the recent lows, but over the past two days something has shifted. Strategists and traders are feeling it.
This morning the Aussie is above US91c and trading at its highest levels in more than two weeks. There is every chance that this rally confounds the Reserve Bank’s hope for a lower Aussie and the rally might extend into the 94-96 region over the next month.
Here’s what changed.
Global growth has stopped being hideously terrible – it’s not great but it has stopped falling.
In a note to clients yesterday the ANZ Economics team wrote:
Our ANZ global lead indicators lifted strongly again in August with growth leadership passing to the developed economies, although China has stabilised. The key issue is whether momentum slides as in 2012 or whether the lift can be sustained into 2014.
This is the big change for the Aussie if the lead indicators of growth have picked up – or at least stopped falling. The ANZ goes on to say:
The sharp rise in our global lead indicator suggests that risk appetite will remain buoyant.
This is really important because now that the dark days of the GFC have passed the Aussie can resume its rightful place in global investment portfolios and traders mind’s as the world’s favourite punt.
That is, if growth is positive and or rising then buyers for the Aussie dollar start lining up.
Because Australia, and Canada to a certain extent, remain the only deep, liquid and developed markets which sell the “stuff” that drives global growth. Iron Ore, Coal – both types, Bauxite, Uranium, Copper, Gold, nickel and so on.
So traders understand that Australia is leveraged to global growth and when it’s positive they buy, when it’s negative they sell.
It’s why the Aussie fell to US0.5960c in the GFC and why, now even though Australian domestic growth looks weak, the buyers are back.
Oh and if you want to know about global growth the ANZ Leading Indicators pic up is stunning
Greg McKenna is an active currency trader – but his trading is in hiatus at the moment