Economy’s progress to fuel Aussie dollar

Christian Edwards
(Australian Associated Press)

 

Slightly disappointing economic growth figures may have hit pause on the Australian dollar’s resurgence, but an increasingly positive local outlook and declining US dollar could see it surge well above 80 US cents.

The Aussie dollar hit 80.28 US cents in the early hours of Wednesday, its highest level since August 1, but dropped back below 80 US cents when June quarter economic growth of 0.8 per cent just missed market expectations.

Those expectations were revised higher on Tuesday due to better than expected international trade figures, and the national accounts contained several positive indicators for the economy, TD Securities chief Asia-Pacific macro strategist Annette Beacher said.

“We are bullish (on the Australian dollar) as the underlying story for the economy remains solid and the cash rate won’t be 1.5 per cent forever,” she said.

TD Securities expects the Aussie dollar to touch 84 US cents in 2018, as the Reserve Bank of Australia is expected to contemplate hiking the cash rate for the first time since 2010, and the US dollar is impacted by the instability of the US administration.

“Tumult on Capitol Hill makes it a source of volatility instead of a beacon of stability,” Ms Beacher said.

“While we think that the RBA is in no rush to hike, the language since the June minutes is more consistent with a central bank thinking about higher rates on the horizon.”

After leaving the cash rate at 1.5 per cent on Tuesday, RBA Governor Philip Lowe said there were improvements in the outlook for business investment, and jobs growth should lead to an improvement in stagnant wages growth over time.

Ms Beacher said wages are the wildcard in the currency pack.

“We agree and think that wages have bottomed,” she said.

Greg McKenna, chief market strategist at FX and CFD provider AxiTrader, said Dr Lowe has backed the laws of supply and demand.

“If RBA Governor Lowe is right, then the laws of supply and demand will also be working in forex markets as Aussie dollar traders buy more AUD as the expected increase in inflation adds to an already positive backdrop for domestic and global growth,” Mr McKenna said.

Were it not for escalating tensions on the Korean peninsula and the associated risk aversion, currency traders would be focusing on the Australian dollar’s move toward 80.6 US cents, or higher, Mr McKenna said.

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