Traders can't figure out what to do with the Australian dollar

DOUG KANTER / AFP / Getty Images

Like many markets over the past 24 hours, the Australian dollar has endured a whirlwind ride in overnight trade, tumbling, then rising, before settling moderately lower.

The 5-minute chart below shows the wild price action.

From the highs seen earlier in the session, when markets were trading like it was a near-certainty that Hillary Clinton would become the next president of the United States, the AUD/USD tumbled 2.5% as Donald Trump gained acendency in the polls, hitting a low of .7576 in late Asian trade.

Then, like other risk assets such as stocks and commodities, it managed to recover with markets adopting the view that a Trump presidency will likely mean increased fiscal spending on major infrastructure works, something that would benefit the commodity-linked Aussie.

The were some enormous moves in commodity markets, including in iron ore, Australia’s largest goods export by dollar value, which jumped to the highest level seen in two years.

“Higher US and European equity markets led by growth stocks combined with a lift in iron ore and coking coal future prices supported AUD,” said Elias Haddad, senior currency strategist at the Commonwealth Bank.

The AUD/USD traded back towards the 77 cent level before eventually moving lower again as higher US bond yields helped put a rocket under the US dollar.

From top to bottom, the AUD/USD traded in a massive 200 pip range.

As at 8.15am AEDT, it currently buys .7647.

The 5-minute chart below shows the wild price action:

Given the price action seen overnight, it’s hardly surprising that many analysts are unsure how the Aussie will trade today.

“Risk sentiment will be paramount, said Rodrigo Catril, currency strategist at the National Australia Bank.

“The prospect of tighter US monetary policy is a negative, but if equities remain buoyant, given a stronger US growth outlook, then this should provide support for ‘risky’ emerging markets and commodity currencies.”

Looking further ahead, CBA’s Haddad says that the Aussie is likely to come under modest selling pressure.

“AUD is vulnerable to more downside because of the likelihood for a more hostile approach to international trade following Trump’s victory and the prospect for a stronger USD,” he says.

“Our view, published in late September, had been a Trump win would push AUD/USD down by 10% over a one year horizon.

“However, Australia’s key commodity prices have unexpectedly surged since we published that view. High commodity prices are a very important source of support and generate higher income and improvements in Australia’s trade and current accounts and will limit the fall in AUD from a Trump Presidency to 4-5%.”

While there are some economic data releases arriving today — Australia housing finance data for September along with weekly US jobless claims just to name two — movements in the Aussie today will almost certainly be driven by sentiment as to what a Trump presidency will mean for the global economy over the next four years.

As we’ve seen over the past 24 hours, that’s anything but certain. About the only thing that will be certain is that volatility will remain elevated.

Outside of economic data releases, several US Federal Reserve officials will speak later in the session. It will be interesting to hear what they’ve made of recent events, particularly given comments made by Trump before the election about replacing existing Federal Reserve chair Janet Yellen.

Here’s the Aussie dollar scoreboard as at 8.15am AEDT:

  • AUD/USD 0.7647 , -0.0114 , -1.47%
  • AUD/JPY 80.92 , -0.67 , -0.82%
  • AUD/CNH 5.2253 , -0.0487 , -0.92%
  • AUD/EUR 0.7007 , -0.0031 , -0.44%
  • AUD/GBP 0.6152 , -0.0115 , -1.84%
  • AUD/NZD 1.0421 , -0.0084 , -0.80%

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