Australian dollar surges as data rattles US

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This was published 9 years ago

Australian dollar surges as data rattles US

By Scott Parker

The Australian dollar surged after the greenback experienced "a capitulation" across the board on the back of weak economic data, more uncertainty around US interest rates and growing Ebola fears.

The Aussie jumped as much as 1.7 per cent to an overnight high of US88.59¢, before once again experiencing an intraday turnaround to fetch US87.85¢ in late local trade on Thursday.

Nomura head of global markets Australia Jon Linton said the selloff was sparked by a number of factors, such as worries about an impending US Federal Reserve rate rise, the traction of the US economy, global growth concerns and Ebola panic.

"The US dollar has weakened across the board against just about everything on the back of quite extraordinary volatility last night," Mr Linton said.

"At one point I think we saw the largest move in bond yields certainly since 2008."

Mr Linton said weak US producer prices and retail sales data contributed to the capitulation but said no area was safe with equities, currency and bonds all being heavily sold off in the US market.

"It was really a US story, it was a story of disappointment of performance in the US economy, rather than anything to do specifically with Australia," Mr Linton said.

Westpac Banking Corp senior market strategist in Wellington, Imre Speizer, said risk aversion accelerated overnight.

He said the disappointing US data, along with additional reports on the spread of the Ebola virus, had driven the moves, but the Australian dollar had fared well.

"[The Australian dollar was] weighed by global risk aversion but supported by US dollar weakness," Mr Speizer said. "We favour a rise towards US88.50¢."

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National Australia bank co-head of foreign exchange Ray Attrill said the lack of confidence in the US dollar was a bit of a surprise amid the general risk-off mood.

Just last week the market had sold off equities and put that cash straight into the US dollar, normally looked upon as a safe haven.

However, traders have dropped that tag and sought international currencies for shelter as well as compounding that by selling down their prior US dollar positions.

Aussie will come back

Forex.com research analyst Chris Tedder said that if US and European economic data weakened further and there continued to be a lack of inflationary pressure in the US economy, the argument for a US Fed rate rise and thus a falling Australian dollar could quickly disappear.

"There's a complete lack of real inflation or inflation forecast [for the US economy] going forward so without that it's hard to see why the Fed would tighten," Mr Tedder said.

"There's so much room, for a significant amount of time, for them to do nothing [the US Fed], which we think is what they'll do."

One Investment Group founder and executive director Justin Epstein had a similar outlook but said it was more a case of the discussed benefits of a low Australian dollar coming before the fundamentals were ready and thus commentators and participants wishing the Aussie dollar down.

"I think the Aussie has taken a temporary dip as a result of commentary that's trying to force it lower due to concerns around China and prices for our exports," Mr Epstein said.

"Subject to major issues not occurring in Asia, the Aussie will come back."

Mr Epstein also said Australia's reputation as a safe-haven among Asian investors will continue to keep the Aussie relatively high if the US and Europe fail to show any signs of economic improvement.

"There's unprecedented demand from China at the moment. We have clients coming in talking about bringing hundreds of millions of dollars, if not billions of dollars into Australia . . . we've never seen anything like it," Mr Epstein said.

"They just want it in a safe haven . . . and that's putting a lot of pressure back on the [Australian] dollar."

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