The Australian Dollar continued to perform bullishly towards the end of the week, edging higher once more on Thursday after the US Dollar’s attempt to push back.
News from earlier in the week has caused US Fed rate hike bets to drop, causing investors to look towards higher yielding assets. This caused AUD/USD to briefly hit a three-month-high of 0.7751, but even the pair was able to hold above 0.77 despite dropping from this high.
Following this week’s global news, markets have flooded away from the US Dollar towards riskier assets as well as the US Dollar’s ‘safe-haven’ rivals.
The Australian Dollar was also able to benefit earlier in the week from solid commodity news, as fresh Chinese trade data revealed that demand for iron ore was at an all-time high.
This caused prices of the ore, Australia’s primary commodity export, to soar to new three month highs. An already rallying ‘Aussie’ was thrusted even higher, even after last week’s Reserve Bank of Australia (RBA) interest rate cut.
Even after the end of the iron ore price rally, the ‘Aussie’ remained among the most appealing major currencies on the market, causing the overvalued currency to advance further.
According to Anthony Darvall from easyMarkets on the ‘Aussie’s rally;
‘The sell off of the US Dollar is the catalyst of such bullish investing, namely because the market does not expect the Federal Reserve to hike rates before the November presidential election’
AUD appeal was also influenced by a surge in appeal for its peer the New Zealand Dollar, as Reserve Bank of New Zealand (RBNZ) rate cut bets were more dovish than the RBNZ’s rate cut itself.
While the US Dollar continued its recovery attempts throughout Thursday’s European and American sessions, it was unable to advance far, with the sturdy ‘Aussie’ Dollar holding it at bay.
Mixed US data was among the reasons the US Dollar was unable to make the most of its recovery attempts. While US jobless claims came in worse-than-expected at 266k, this was still close enough to the expected 265k to be considered an improvement and caused the 52-week moving average of jobless claims to hit a new post-crisis low.
However, the US Dollar may also have been weighed down by ongoing uncertainty surrounding the upcoming US Election. According to a survey from The Wall Street Journal, economists believe that the election is harming the US’ economic activity itself.
‘While every election spurs some economic uncertainty, more than 80% of respondents to the Journal’s latest survey of economists rate the current cycle as presenting an unusual muddle. A majority—57%—said the economy has suffered, at least somewhat, as a result.
“This election introduces a Mount Everest of uncertainty,” said Kevin Swift, chief economist at the American Chemistry Council.’
Diminishing Federal Reserve rate hike bets throughout the week also weighed heavily on USD appeal, causing the typically popular currency to underperform against majors.
With the week heading to an end, the US Dollar is likely to drive movement in the ‘Aussie’ to USD exchange rate on Friday before markets draw to a close for the week.
A lack of influential Australian data during the Asian session means that the risk-correlated ‘Aussie’ is likely to move in relation to commodity news and risk movement until the American session begins.
However, July’s Chinese retail sales reports may also have an influence on the ‘Aussie’, as the trade-partnership between China and Australia means that the ‘Aussie’ often reacts to Chinese trade news.
Key US data expected to be published during Friday’s American session includes retail sales figures for July, as well as a preliminary August confidence survey from the University of Michigan.
As prices of iron ore have been a key moving point for the Australian Dollar in the past week, analysts have been looking ahead to what the commodity may do next/
According to analysts who predicted the iron ore 2016 price rally, the commodity could continue to gain in demand and price in 2017 and 18. This would certainly keep the ‘Aussie’ in high demand in the long term.
At the time of writing, the AUD to USD exchange rate trended in the region of 0.7715, while the USD to AUD exchange rate traded at around 1.2955.
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