The Australian dollar’s climb over the past month has defied forecasts, taking it to the top of the leaderboard as rising commodity prices, falling volatility and a central bank on the sidelines drive demand.
Only one of more than 50 forecasters are predicting the Aussie will strengthen in the second quarter after it climbed against all major peers since early February to reach a seven-month high on Friday. The currency retreated Monday after China’s expanded deficit target disappointed some in the market expecting a more aggressive stimulus signal from Australia’s largest trading partner, National Australia Bank Ltd. said. Traders will watch for comments from Reserve Bank of Australia Deputy Governor Philip Lowe Tuesday for signs the currency’s strength is beginning to trouble policy makers.
“It’s been a bit of a perfect storm blowing behind the Aussie in terms of tailwinds, obviously commodity prices have come roaring back with the iron ore price in particular,” said Ray Attrill, co-head of currency strategy at NAB in Sydney. “I think 80 cents would clearly be troubling, 75 cents is unwelcome but I’m not convinced we’re going to get a sharp resurrection of the rhetoric we’ve had in years past from the RBA.”
The Aussie was at 74.12 U.S. cents as of 12:07 p.m. in Tokyo, down 0.4 percent from Friday, when it touched 74.43, the most since July. It has gained 4.9 percent in the past month. The currency will weaken to 69 cents by June 30, according to the median of estimates compiled by Bloomberg. Nordea Bank was the only one anticipating further gains, forecasting 76 cents, while the remaining projections ranged from 74 to 64 cents.
RBA board member John Edwards last month told the Wall Street Journal that the Aussie was too strong and he would be more comfortable with a level around 65 cents. He added that he wasn’t confident a drop to that level would occur, according to the report.
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The Aussie has climbed as the Bloomberg Commodity Index rose 3.7 percent over the past month, while the MSCI Asia Pacific Index of regional equities strengthened 4.8 percent. The price of iron ore, Australia’s chief export, has surged about 18 percent through Friday.
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