Plenty Of Fuel For Aussie Gains.By Nicholas Hastings
Don't lose faith in the Aussie's rally.
The going may be getting harder for the Australian currency as immediate rate hike expectations fade and long speculative positions grow.
However, with the Australian economy still growing faster than its G10 competitors, the prospect of more rate hikes still high and with China possibly proving less hawkish on inflation than expected, there is plenty fuel to keep the Aussie on the rise.
For the moment, technical analysts await a break of the currency's eight-week highs above $0.9194 to take it back to its Jan. 14 high for the year at $0.9330. After that the next stop is the Nov. 16 high at $0.9404.
See the Aussie's recent climb:
Click Image to Enlarge
For the past week or two the Aussie has been trading sideways, as investors are worried that the Reserve Bank of Australia may not be as hawkish as anticipated, concerned that China might try and slow its recovery and are also worried that a steady rise in market positioning in favor of the currency could prevent further gains.
The minutes of RBA's latest meeting published Tuesday certainly confirmed that the central bank won't be hiking rates again in April as expected.
In fact, given that Australian inflation pressures are expected to subside to 2.5% over the next year--right smack in the middle of the bank's 2% to 3% inflation target--the RBA may well wait until August before moving.
However, that doesn't mean that the RBA will be falling behind other major central banks. On the contrary, even the start of a rate-hiking cycle remains out of the question in most other major economies, with the U.S. showing little sign of moving in the foreseeable future.
By constrast, the RBA will eventually resume tightening policy, with economists at UBS expecting another 75 basis points before the end of this year and a further 75 basis points in hikes next year.
Fears that China might be worried about overheating and force its economy to slowdown could also prove overdone.
Some economists dismiss a recent sharp rise in Chinese inflation, which came largely from food prices associated with the Chinese New Year. They argue that although inflation will still drift higher, it will peak around 5% by October and fall back to average 3.5%, or just above the government's 3% target in 2010.
"We find it increasingly hard to recognize the inflation-ridden, bubble-filled China that we read about in the newspapers," said Mark Williams, senior China economist with Capital Economics in London.
"A surge in inflation is a risk not a current danger," Williams said, pointing out that even if inflation was a problem, higher interest rates may well not tame it.
The latest report on currency positions on the Chicago Mercantile Exchange showing that net long positions in the Australian currency rose the most over the last month, along with those in the Canadian dollar, certainly didn't help the case for more Aussie gains.
However, given that the prospects of yield differentials continuing to widen in the currency's favor there should be little reason why even more long Aussie positions don't look attractive.
Early Wednesday in Europe, the Aussie was up a little at $0.9210 at 0745 GMT from $0.9189 late Tuesday in New York, according to EBS.
Like other high yielders it was benefiting from an improvement in market sentiment after the Fed left its rates unchanged for "an extended period" and the Bank of Japan extended its non-conventional easing program a little more and helped global equity prices higher.
The dollar was up at Y90.48 from Y90.22, while the euro rose to $1.3803 from $1.3776 and to Y124.89 from Y124.31.
The going may be getting harder for the Australian currency as immediate rate hike expectations fade and long speculative positions grow.
However, with the Australian economy still growing faster than its G10 competitors, the prospect of more rate hikes still high and with China possibly proving less hawkish on inflation than expected, there is plenty fuel to keep the Aussie on the rise.
For the moment, technical analysts await a break of the currency's eight-week highs above $0.9194 to take it back to its Jan. 14 high for the year at $0.9330. After that the next stop is the Nov. 16 high at $0.9404.
See the Aussie's recent climb:
Click Image to Enlarge
For the past week or two the Aussie has been trading sideways, as investors are worried that the Reserve Bank of Australia may not be as hawkish as anticipated, concerned that China might try and slow its recovery and are also worried that a steady rise in market positioning in favor of the currency could prevent further gains.
The minutes of RBA's latest meeting published Tuesday certainly confirmed that the central bank won't be hiking rates again in April as expected.
In fact, given that Australian inflation pressures are expected to subside to 2.5% over the next year--right smack in the middle of the bank's 2% to 3% inflation target--the RBA may well wait until August before moving.
However, that doesn't mean that the RBA will be falling behind other major central banks. On the contrary, even the start of a rate-hiking cycle remains out of the question in most other major economies, with the U.S. showing little sign of moving in the foreseeable future.
By constrast, the RBA will eventually resume tightening policy, with economists at UBS expecting another 75 basis points before the end of this year and a further 75 basis points in hikes next year.
Fears that China might be worried about overheating and force its economy to slowdown could also prove overdone.
Some economists dismiss a recent sharp rise in Chinese inflation, which came largely from food prices associated with the Chinese New Year. They argue that although inflation will still drift higher, it will peak around 5% by October and fall back to average 3.5%, or just above the government's 3% target in 2010.
"We find it increasingly hard to recognize the inflation-ridden, bubble-filled China that we read about in the newspapers," said Mark Williams, senior China economist with Capital Economics in London.
"A surge in inflation is a risk not a current danger," Williams said, pointing out that even if inflation was a problem, higher interest rates may well not tame it.
The latest report on currency positions on the Chicago Mercantile Exchange showing that net long positions in the Australian currency rose the most over the last month, along with those in the Canadian dollar, certainly didn't help the case for more Aussie gains.
However, given that the prospects of yield differentials continuing to widen in the currency's favor there should be little reason why even more long Aussie positions don't look attractive.
Early Wednesday in Europe, the Aussie was up a little at $0.9210 at 0745 GMT from $0.9189 late Tuesday in New York, according to EBS.
Like other high yielders it was benefiting from an improvement in market sentiment after the Fed left its rates unchanged for "an extended period" and the Bank of Japan extended its non-conventional easing program a little more and helped global equity prices higher.
The dollar was up at Y90.48 from Y90.22, while the euro rose to $1.3803 from $1.3776 and to Y124.89 from Y124.31.
- 17 March |
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