The week between Christmas and New Year is typically quiet in terms of currency markets. With minimal high tier economic data due for release until late in the week significant traders have no real incentives to place large volume orders.
Throughout Tuesday’s Asian trading session the AUD remained firm trading between 0.7256 and 0.7276 US cents. The “Aussie” remained within a similar range against most other major currencies. While the local currency remained notably flat within Tuesday’s local session the currency rose to an almost three week high overnight reaching a high of 0.7303 – it’s highest level since December 10th. Brown Brothers Harriman global head of currency strategy Marc Chandler said the recovery in commodity prices drove equities and most currencies higher overnight. Market confidence was also lifted by some encouraging US housing data.
The Aussie Dollar has made significant gains in recent weeks against most major currencies including the USD despite the US Fed’s recent rate increase. Over the last month the AUD has made almost 2% of gains against the USD defying most economists prediction of weakening in the currency. Surprisingly, over the same time period the price of iron ore – Australia’s largest export has dropped by over 10%. St George senior economist Hans Kunnen said iron ore prices are a touch stronger, while oil prices continue to plummet. “It’s a real mixed picture for the Aussie in terms of commodities,” he said. “But without stimulus in China, it’s difficult to see prices picking up and the Aussie going with it.”
“Most major currency pairs are in a holding pattern as 2015 draws to a close,” said John Hardy, Denmark-based head of FX strategy at Saxo Bank. He said the listless trading would likely end with a bang next week, when a raft of fresh economic data is published in the US that should blast some of the major US dollar pairs out of their recent ranges
“The first week of the New Year could see the action in currency markets kicking immediately into high gear,” he said.
Mr Hardy is among those who consider the Australian dollar too strong in light of a sharp decline in commodity prices in recent weeks. The value of Australia’s key export iron ore is down 43 per cent in the year to date and remains near decade-lows, even as it rose slightly overnight to cap ten consecutive trading days without a fall.
Record-low interest rates have helped the resource-rich economy sidestep the fallout from the mining sector this year, but their stimulatory effect on consumption and the housing industry would weaken dramatically in 2016 and weigh on the Australian dollar, said Mr Hardy.