Australia’s dollar has powered ahead over the past three months and both technical and fundamental factors suggest the rally still has some way to run.
(Bloomberg) — Australia’s dollar has powered ahead over the past three months and both technical and fundamental factors suggest the rally still has some way to run.
The currency is set to extend gains as China’s reopening from Covid boosts demand for Aussie exports such as coal, while local employment data this week may bolster bets on additional central-bank tightening. A winding back of bets on Federal Reserve interest-rate hikes is also helping by pushing down the US dollar.
On the technical front, the Aussie made short work of resistance at its 200-day moving average earlier this month. The runway now looks clear for a challenge of the next potential obstacle, the peak above 71 US cents set in mid August.
“The August high of 0.7137 is possible so long as market view of a less hawkish Fed is confirmed,” said Patrick Bennett, a strategist at Canadian Imperial Bank of Commerce in Hong Kong. While the employment report will be a major factor influencing the central bank, consideration may also be given to positive shifts in the China outlook, and domestic inflation which is still sticky, he said.
The AUD/USD currency pair has jumped more than 10% from its October low of 0.6179 and reached a high of 0.6994 last week, the strongest since August.
Markets are currently pricing in a rate increase of 20 basis points by the Reserve Bank of Australia at its Feb. 7 meeting, which would mark a ninth straight month of tightening. Policy makers are prepared to pause rate hikes or return to 50 basis-point moves if the economy requires it, minutes of the November meeting showed.
Australian employers probably added 25,000 workers in December, a third month of job growth, while the unemployment rate held at a record-low 3.4% for a third month, according to a Bloomberg survey of economists before the numbers are published Thursday.
China Rebound
The main driver behind the latest leg of the Aussie’s rally has been the improving outlook for China, Australia’s largest export market. The mainland’s decision to ditch most of its Covid curbs was one factor, as were reports that Chinese bureaucrats are discussing plans to resume some imports of Australian coal.
The reopening of China is also fueling optimism toward the recovery of the global economy, which will also help the Aussie given the currency’s correlation with global growth.
“AUD/USD is subject to upside risks given the better-than-expected outlook for the world economy,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia in Sydney. “If China can successfully navigate the current exit wave of Covid infections, its economic rebound will likely provide an additional tailwind to AUD/USD.”
Here are the key Asian economic data due this week:
- Monday, Jan. 16: China 1-year medium term lending facility, Japan PPI, Indonesia trade balance, India wholesale prices
- Tuesday, Jan. 17: Australia consumer confidence; China industrial production, retail sales, fixed assets ex-rural and GDP; Singapore non-oil domestic exports
- Wednesday, Jan. 18: Bank of Japan policy decision, Japan core machine orders and industrial production, New Zealand retail card spending, Taiwan GDP, Malaysia trade balance
- Thursday, Jan. 19: Australia employment, Bank Indonesia rate decision, Bank Negara Malaysia rate decision, Japan trade balance, Philippines BOP overall,
- Friday, Jan. 20: Japan CPI, China loan prime rate, Malaysia CPI, New Zealand manufacturing PMI, South Korea PPI
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