The pullback in the US dollar in the wake of the more-dovish-than-expected Fed minutes alongside a bounce in commodities in the Asian session seems to have renewed investor appetite for the Aussie dollar.
In a way, it’s odd for the Aussie dollar to rally so much on domestic data, considering the RBA recently cut interest rates, painted a dismal picture on the outlook for inflation and made a fairly good case for two more rate cuts to happen over the next twelve months and the AUD only rallied in response. The support for the Aussie dollar is much more a reflection of the macro picture. The USD has steadily sold off after its big 2Q GDP miss as expectations for a rate rise in 2016 continue to ebb away. As the prospect for a rise in US yields dissipates and Bank of England (BoE), European Central Bank (ECB) and Bank of Japan (BoJ) bond buying continues to depress yields, the yield appeal of the AUD continues to hold. But also as central banks strain at the bounds of monetary policy, calls have been growing louder for governments to step in and pull their weight by upping fiscal spending. The prospect for fiscal spending to kickstart a pickup in the industrial cycle is being met with resounding support in commodity prices. And the AUD, as a commodity currency, is also a key beneficiary of the steady push towards more global fiscal intervention. In such a scenario, there is a good chance the AUD breaks through US$0.78, maybe even moving up to US$0.80 if we see some key misses in US data.