It’s been a wild ride for Aussie dollar traders this week with Monday’s low of 0.763 giving way to last night’s high of 0.7749 when the US dollar was under pressure and the yen was trading down through 100 to the dollar.
That US dollar weakness was despite warnings from senior Fed presidents William Dudley of New York and Dennis Lockhart of Atlanta that next month’s FOMC meeting could be a “live” one for a rate hike in the United States.
But as the US dollar fought back, the Aussie dollar weakened again, along with the yen to sit at 0.7692 this morning. That’s up 22 points on the previous night’s New York close.
But at approximately 77 cents, the Aussie is still much stronger than the 60 and 65 cent calls that were so prevalent earlier this year.
Indeed, Bloomberg reported overnight that Roy Teo, ABN Amro Bank NV’s senior currency strategist in Singapore, said the Australian dollar is unlikely to weaken toward the 72 cents at the end of the third quarter as ABN had been forecasting. Teo now sees the Aussie ending the year at 74 cents even with another RBA rate cut.
Why the Aussie is defying all the doomsayers, and what the RBA may have also wanted is understandable, RBA governor Glenn Stevens told The Australian in an interview. He said that even though rates in Australia might be low by historical standards for the RBA and the Australian economy they are still attractive to foreign investors.
“If you’re sitting in Frankfurt or Tokyo or New York looking for yield, that actually, probably, looks pretty attractive,” he said.
“Government bonds 15 yielding 2-ish, that looks pretty attractive for many investors. So it’s not just the rate we set, even though that does matter. It’s a search for yield world and this country still looks attractive because other yields look so unattractive.”
One point worth noting here for those who keep reporting that the RBA is losing the perceived currency war, or will be upset that the Aussie is higher than the RBA wants – Stevens’ comment shows the pragmatic approach of the RBA to the value of the Aussie dollar.
The RBA has been running the cleanest and freest of free floats in currency markets for more than 30 years. They know what they do is an influence at the margin, not the key driver of the currency’s moves.
Looking at the day ahead, the release of the Wage Price Index is likely to have more importance than usual, says Commonwealth Bank currency strategist Elias Haddad.
Haddad said: “Australia’s wage Price Index (WPI) has taken added importance lately given the RBA’s benign inflation outlook. We expect wages growth of 0.5% QoQ in Q2 which would leave annual wages growth at 2% (in line with participant expectations).”