The Australian dollar (AUD) continues to reach new highs against the US dollar (USD). As of yesterday, it’s shot back up to its highest level since late October. On Thursday, in the Asian trading session, the AUD/USD cross broke out to the upside. This increase was supported by the encouraging surprise release of Australia’s trade balance data. The AUD/USD currency pair remains perched above the 0.6600 level. This instills a feeling of tempered optimism among market participants about its long-term potential for continued growth.
When Michele Bullock was recently appointed the Governor of the Reserve Bank of Australia (RBA), a dozen or so concerns sprung up across the media about rising inflation. She warned that if price pressures prove to be permanent, they could significantly influence the future direction of monetary policy. Bullock recognized that inflation remains above the Fed’s long term goal of 2 to 3 percent. This makes it fertile ground for all kinds of speculation as to what this means for upcoming interest rate increases.
A sharp dive was seen on AUD/USD initially following the new trade figures being announced. In October, exports were up 3.4%. That was barely enough to match September’s stellar 7.9% advance. For the month reported, imports jumped 2%. This growth, buoyed by overall strong sentiment surrounding the Australian economy, contributed to an optimistic atmosphere.
Bulls in the AUD/USD market are poised to take advantage of this bullish momentum. Speculators are looking to knock the Dollar over the 0.6600 threshold. The Aussie dollar has recently been well supported, thanks to a strong economic backdrop. That’s in part thanks to good trade figures and optimistic market projections for the trajectory of US monetary policy.
Traders are watching developments very closely in the rest of the world—specifically, the U.S. The likelihood that the Federal Reserve will cut borrowing costs next week is now nearly 90%. The expected change in US monetary policy might increase the siren call of the Aussie dollar. Furthermore, investors are hungry for yield, making it all the more attractive to investors.
The AUD/USD pair continues rising. At the same, market analysts are scratching their heads over Bullock’s comments on inflation with the backdrop of favorable trade data. Third, these factors interact in a fascinatingly dynamic way. Yet, they’ll have an important impact on the future trajectory of both currencies in the short term.