Aussie: worst performing currency against US dollar this week

admin | 杭州桑拿
7 Jun 2019

The Australian dollar briefly dipped to a four-and-a-half year low of US85.64¢ on Wednesday. The Australian dollar briefly dipped to a four-and-a-half year low of US85.64¢ on Wednesday.

The Australian dollar briefly dipped to a four-and-a-half year low of US85.64¢ on Wednesday.

The Australian dollar briefly dipped to a four-and-a-half year low of US85.64¢ on Wednesday.

The Australian dollar’s dramatic plunge on Wednesday night has made it the worst performing currency against the US dollar this week but it remains resilient against the rest of the world’s major currencies.

The Australian dollar slid nearly 2 per cent to a four-and-a-half year low of US85.64¢ during the New York trading session after the greenback surged on a mixture of positive US jobs data, a Republican victory in the US Senate and a $US27 plunge in the gold price during the New York trading session.

The dollar continued its slide in local trade on Thursday, falling as low as US85.54¢ around midday, despite data showing that employment in Australia rose more than expected last month. During the afternoon the currency eventually clawed back some ground and was fetching US86.17¢ in late trade.

But on a trade-weighted basis – against a basket of major currencies – the Aussie is performing much better, trading about 5 per cent above the year’s low it hit at the end of January and just 3 per cent below the year’s high from early July.

The reason for the discrepancy is an emerging currency war where struggling major economies such as Europe and Japan are easing monetary policy in an attempt to spur business lending and lower their currencies to make their exporters more competitive.

The Reserve Bank of Australia also noted its continued concern about the level of the local currency. In its monthly policy statement this week it reverted to earlier language about the need for a broader and deeper depreciation.

“Key steps by the Bank of Japan and also by the European Central Bank to effectively inject more money into the market, is providing extra liquidity, and that tends to support the Aussie dollar,” said Westpac senior currency strategist Sean Callow.

Mr Callow expects to see the Australian dollar trade higher by year-end and closer to US90¢. He also sees the local currency outperforming the Japanese Yen and the Euro.

Most currency strategists believe that the Aussie dollar’s weakness this year has primarily been a US dollar story, and the result of less central bank stimulus and the prospect of higher rates next year. Both of which point to a stronger US economy and increase investor confidence.

But the extent to which the local currency continues to weaken and remain attractive to investors is being debated by senior experts.

National Australia Bank’s global co-head of foreign exchange strategy Ray Attrill, who sees the local currency testing the bottom of the US85¢ range before Christmas, and heading to US80¢ in 2015, said the Aussie was being driven by a stronger US dollar and a revival in the linkage with key commodities.

“Investors are becoming more confident that the US Federal Reserve will rate rates next year and further downward pressure on key commodities such as gold and iron ore,” he said. Australia is the biggest iron ore producer and among the largest gold producers.

The iron ore price on Wednesday fell 1.5 per cent to a five-year low of $US76.46, with further pressure expected. The latest drop was partly due to reports that China had temporary shut down some steel mills in an effort to clear the air ahead of the coming APEC summit.

Gold is trading at fresh four-year lows just under $US1150 a ounce as investors sell out of the safe haven asset.

The Australian dollar had been trading in a range of between US86.5¢ and US88.5¢ for the past six weeks. A drop in New York trading took it to its lowest level since July 2010.

AUD may return to US90¢

“We also expect further support for commodities,” he added, predicting iron ore sentiment to improve towards the turn of the new year.

Underlining the Australian dollar’s diverging fortunes, since the middle of October and up until the start of this week, the currency surged higher against the euro and yen with gains of 2.7 and 6.6 per cent respectively. This was largely in response to expectations of greater stimulus from Europe and Japan.

“The ECB has its back against the wall,” said Mr Callow, adding that regardless of the outcome of Thursday’s European Central Bank meeting, policy makers will be looking towards boosting the ECB balance sheet.

“This effectively means a greater supply of euros and that should chip away at its value,” he said.

Over the past two years, investor appetite for yield in a low interest rate and stimulus rich environment has been one of the main factors supporting gains in the Australian dollar. The dollar was trading around parity for about two years, between late 2010 and mid 2013.

But NAB’s Ray Attrill doubts that the hunt for yield and more stimulus from Japan and Euro will be enough to stop the Aussie from possibly breaking below US85¢ in the near future.

“I would take the otherwise of the argument. The flipside of the US dollar strength is commodity price weakness. That is coming through irrespective of the US, with clear evidence of Chinese demand growth slowing,” he said.

“I think for the next six months, the risk is that the Australian dollar will underperform even against the yen and the euro. That is particularly because the ECB will be slow to mirror what the Bank of Japan is doing.

“The Aussie will probably perform at least as poorly as the euro and even worse that the yen.

The US dollar extended its lead at the year’s best-performing major currency on Wednesday on news of strong private-sector US job growth and after the Republicans won seven seats in the US Senate, giving them control of both houses of Congress for the first time since 2006. The Republicans have been calling for pro-energy and other business policies.

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