Australian dollar breaks through US 80c
28 Aug 2017
By Shadforth Financial Group
The Australian dollar has moved higher against many global currencies over the past few months, breaking through the psychological US 80c mark in late July, the highest level in over two years.
There were a number of drivers for the move including higher commodity prices, iron ore was up 18.2% in July, and strong Chinese economic data which reflected increased foreign and domestic demand. Central banks also played their part with the Reserve Bank of Australia’s July minutes being taken as more hawkish than expected by the market. The US Federal Reserve’s more dovish than expected monetary policy statement also helped.
RBA minutes spook the market
The Reserve Bank of Australia left the cash rate unchanged at a historical low of 1.50% in July but surprisingly they opted to discuss the neutral nominal cash rate in the meeting minutes, stating that it had fallen to around 3.50% since the global financial crisis. The market overreacted to these comments, assuming the figure was an indication of where interest rates should be in the future and that an interest rate increase was near. Guy Debelle, the RBA Deputy Governor, had to calm markets shortly thereafter by stating that “no significance should be read into the fact the neutral rate was discussed”, and it is rather a “benchmark for assessing the current stance of monetary policy”.
US markets continue to hit all-time highs
US markets have continued to move higher despite continual disappointment in the Trump administration. Republican leaders in the Senate ditched their effort to repeal and replace Obamacare, also known as the Affordable Care Act. This raised more concerns over the cohesion of the Republican Party and the implications for proposed tax reform. The Russian question also continued to plague the administration, taking time away from meaningful issues such as health care and tax reform. The US dollar was weaker against many global currencies and sank to levels not seen since early 2016 on a trade-weighted basis.