TH: Australian dollar rallies, new highs on horizon
THE Australian dollar rallied sharply in Asian trade today, pushing to its highest levels in one month against the US dollar.
At 0550 GMT, the Australian dollar traded at US99.55 cents, up from US98.51c late yesterday. Against the Japanese yen, the currency traded at Y83.075, up from Y82.87.
Australian bond prices moved higher on both ends of the curve in a light volume session ahead of a roll-over in the December bond futures contract to March.
Setting off a considerable drop in the US dollar was a fall in US Treasury yields overnight, failure of the greenback to break above a key technical level against the euro and a Moody's Investors Service report that the proposed US tax package increases the chance of a negative outlook being placed on the country's AAA rating in the next two years.
“There was this flushing out of positioning that pushed on the US dollar,” said John Horner, head of foreign exchange strategy for Deutsche Bank in Sydney.
“The absence of any Chinese rate hike after their surging inflation numbers over the weekend helped the Australian dollar.”
Mr Horner said the currency was on the precipice of breaking key resistance that could lead to a further push higher.
“The Australian dollar has been between US95.50c and US99.50c in recent weeks. But we're testing the high side of that range now with a break above meaning a possible run to new highs,” he said.
Notably, the Australian dollar hit a 28-year high of $US1.0182 in early November after pushing above parity for the first time since the currency was floated in 1983.
Ahead of a roll-over in Australian bond futures tomorrow afternoon, bond prices followed US Treasurys higher on the session in a tandem trade likely to continue for now, said Michael Turner, a strategist with RBC Capital Markets.
Cues are particularly lacking on the domestic front until next year, with little upcoming data, while redemptions and window dressing aren't usually a big factor in bond trading in Australia.
“We've been tracking the US to a large degree and that should continue,” said Mr Turner, adding that the Federal Reserve interest rate decision tomorrow may not have as much of an impact this time as it has had after the last few meetings.
In the interest rate futures market, the December 3-year bond futures contract rose four ticks to 94.775, while the 10-year bond increased 5.5 ticks to 94.36.
