by Jon Beddell
Foreign Currency Market Update – AUD / USD Update
The Aussie dollar rebounded sharply after experiencing a bout of weakness in early February that was caused by a correction in world stock markets and a surprise decision by the Reserve bank of Australia to keep interest rates on hold at 3.75% (investors had been expecting a move to 4%). Since then stock markets have recovered their poise and continue to make new highs on an almost daily basis. The RBA has also raised interest rates twice, giving the Aussie dollar a mouth watering yield of 4.25%. That’s in stark comparison to the US dollar, which has a yield of just 0.25%. In recent comments Federal Reserve officials have given markets cause to think that interest rates will remain at this record low for some months to come. Meanwhile, commodity prices have also recovered sharply in recent weeks, further underpinning the bounce in commodity related currencies.
Strong consumer confidence data helped the Australian currency yesterday, and a further boot today came in the form of a revaluation of the Singapore dollar. The administration moved the trading band to what it considers to be the “prevailing nominal trading rate”, signalling a shift in policy toward a “gradual appreciation” after strong growth data confirmed that the economy has recovered all of the output lost during the recession. By increasing the value of the currency, the administration is trying to combat possible inflation by moderating the pace of export growth and domestic spending. The move is being taken as a sign that other Asian nations will also move towards a monetary tightening stance, with rumours now swirling that China may revalue the Yuan. The upshot is that global recovery hopes have been boosted, helping the Aussie dollar, and denting enthusiasm for so called “safe haven” currencies like the US dollar.
The technical outlook is positive for the Aussie dollar. We are now testing the resistance level around 0.9400 that has presented a major barrier to this market over recent months. A daily close above here would suggest further gains in the short term.
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