Australian Dollar Update:
Historically, the Aussie economy was said to be very reliant on the health and prosperity of the Chinese economy, as they are the major purchaser of our exports.
In more recent weeks, the strong link between the Australian and Chinese economies has become more and more discrete. The Australian economy is at the beginning stages of becoming less dependent on the export of her natural resources, however there is still some work to be done before becoming a so called “Five pillar economy”. Initial reactions to the latest release of negative Chinese PMI data on Monday provoked a bearish reaction from the AUD, however, the lost ground was made back within hours of the release.
Glen Stevens in his press conference for Credit Swiss yesterday changed face to bullish comments for the AUD. For the first time in 2 months Stevens had kinder words towards the Aussie dollar. He drew attention to the current levels of inflation (2.7%) relative to the target which is set between 2-3%. He also mentioned that interest rate cuts have been ruled out, indefinitely. He then went on to hint at the possibility of interest rate hikes at some point in the not too distant future. Finally he stated that current Aussie economic growth has steadied and is looking to strengthen towards the end of 2015.
As a result of these comments we saw the AUD rally again for a fourth consecutive day this week. This was mainly due to the European session’s reaction towards the news from down under. The AUD finally broke the 0.92/USD level that felt impossible in the weeks preceding this one. Assisting this were mixed results from the Durable Goods (DG) figures from the States. Although these DG results were much better than the Yanks were expecting, the adjusted DG result (excluding transportation )is generally held as a better estimator and this fell below expectations. In addition, the US Fed’s Plosser made suggestions that the bond purchasing scheme will finish up in October. There were mixed reactions over this announcement, as US equities fell and the USD found short-term momentum.
To wrap up the US session, it seemed that conflicting data resulted in sentiment levels reaching a stalemate, benefitting the higher yielding currencies such as, the Rand, NZD and of course the AUD.