By guest contributor Stuart Talman, Director of Australian Sales, XE.com.
Heading into last week the Aussie dollar, year-to-date, was sitting down over 9% vs the USD – the worst performing currency of all the developed nations.
The narrative for last week, as it had been for the two week’s prior was that AUDUSD was seemingly defying gravity – but once again had managed to lift itself off the floor and shun a move below 70 US cents. This past week was once again a resilient one for the AUD, producing the largest percentage daily gain since mid-March 2017, as the Australian dollar was catapulted higher – closing the week almost 1.50% higher and ripping back through 72 US cents.
So what was the catalyst for the move, and are we likely to remain above 70 US cents given the resounding bounce?
With a comprehensive list of factors weighing on the local currency and being the worst performing major against the USD for 2018 – being short the Aussie dollar is one of global financial market’s most crowded trades. So despite another feeble round of inflation data last week, which in isolation could have been the catalyst for AUDUSD to sink further, it seemed that traders may have been looking for any excuse to unwind their short positions and take profit.
The first excuse came in the form of a resoundingly strong trade date release on Thursday – a surplus of over A$3.0 billion, the third largest on record. Despite the impressive result, this is unlikely to feed into a stronger GDP number for Q3 as the boost was driven by price increases for iron ore and LNG exports in addition to a drop in the price of industrial equipment and machinery.