The US dollar fell sharply on Monday as risk-on trade and falling US Treasury yields weighed heavily on the safe-haven currency.
- Strong Australian data and coronavirus vaccine hopes boost the Australian dollar.
- After months of strong performance, the ‘Aussie’ could recoil back from its highs.
- AUD Monthly lows: £0.55, €0.61, $0.74, C$0.95, N$1.05
- AUD Monthly highs: £0.57, €0.63, $0.78, C$0.98, N$1.08
The Australian dollar’s strong streak has continued for the past month.
While some major economies have seen stricter coronavirus-related lockdowns and issues with vaccine rollouts, the risk and trade-correlated Australian dollar remained appealing.
This has been due to multiple factors keeping the ‘Aussie’ buoyed, with Australian data continuing to impress investors, showing resilience amid the pandemic.
Last month’s Australian job market report was much stronger than expected while Australian retail sales data published this week beat forecast too.
Australia’s handling of the pandemic, with quick strict lockdowns to keep coronavirus cases down and keeping the rest of the economy ticking along, continues to be well-received.
While Sydney did see a small coronavirus outbreak over the past month, that outbreak was quickly tackled and it wasn’t long before locally transferred cases per day was zero again.
Australia’s economic outlook is also good enough that speculation for further monetary easing from the Reserve Bank of Australia (RBA) hasn’t notably risen, unlike other major central banks.
As well as Australia’s own fairly solid economic and coronavirus outlooks, the Australian dollar has been benefitting from weakness in its rivals.
The US dollar has seen continued broad weakness so far this year. Expectations for more fiscal stimulus from the incoming Biden administration are making investors more willing to take risks and buy other currencies instead.
However, the Australian dollar may struggle to sustain gains as speculation increases that the risk-on relief rally could be running out of steam.
Some analysts, such as those at Credit Suisse, forecast that the RBA is unlikely to downplay the strength of the Australian dollar unless it continues to gain on the US dollar.
Although with vaccine rollout continuing to ramp up, and the US dollar still weak, potential upside for the Australian dollar remains.
If Australia continues to handle the pandemic better than other major nations and Australian data continues to impress, markets will have reason to keep buying the ‘Aussie’.
Markets will be keeping an eye on more job market and retail data releases due next week, while the RBA policy decision at the beginning of February will also be closely watched.
Joining the corporate trading desk in 2007, Phil now over sees all of Currencies Direct’s corporate dealing activity. Having gained experience working with hundreds of businesses to optimise international payments processes and execute comprehensive risk management strategies, Phil currently works with a portfolio of corporate clients whilst managing Currencies Direct’s overall market exposure
Phil has FCA approval and has completed the Certificate in International Treasury Management (CertiTM)