How much further can the Australian dollar rise?
GFT director of currency research Kathy Lien says new home sales figures for October could shift the AUD/USD market
Since the beginning of the year, the Aussie has appreciated more than 30% against the U.S. dollar and more recently has hit a fresh 15-month high. Backed by solid fundamentals, it has performed better than every single G20 currency. Just taking a look at the past two weeks of economic data, Australia experienced positive job growth three out of the last four months while business confidence rebounded close to six-year highs. In contrast, the U.S. has just experienced its 22nd consecutive month of net job losses. Having visited Sydney in early November, the optimism of Australians and the pessimism of Americans are as obvious as night and day.
As long as the economy remains resilient in the face of additional rate hikes, the Australian dollar should continue to outperform. However within every long term trend, there will be corrections and over the next two weeks, a flurry of economic data and comments from central bank officials could stifle the rally in the AUD/USD.
Rate hike speculation will come to a peak on December 1 when the Reserve Bank will make its final monetary policy announcement for the year. To help with the decision will be the Westpac Leading Index, Weekly Wages, new home sales, building approvals and manufacturing sector PMI. Since the rapid-fire recovery in the housing market is one of the main reasons why the RBA has been aggressively raising interest rates, the degree of new home sales in the month of October could be particularly market moving for the Aussie.
It will also be important to listen to what RBA officials Debelle and Battelino have to say because the RBA rarely raises interest rates just before the holidays. The last time they tightened monetary policy in December was six-years ago and since 1990, the RBA has never raised interest rates three times in a row. However unprecedented times may call for unprecedented measures and therefore the RBA could still tighten – the market is currently pricing in a 25bp hike. If they follow through with the hike, it should help to propel the Aussie above 95 cents. If they pause, we could see a temporary correction in the AUD/USD.
The degree of correction will be contingent upon what the RBA says. If they still plan on hiking rates in the first quarter, then the dip may be nominal.
