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Forex: Aussie defying gravity

The biggest surprise of the quarter has been the Aussie, as we hinted at in yesterday’s Daily Brief. The currency has risen overnight for the fourth consecutive session, above the 0.92 level for the first time since late November. The latest move higher comes from bullish comments from RBA Governor Stevens, who only a few months ago was doing his best to talk down the currency. The big challenge for Australia has been moving away from its dependency on exporting natural resources to China and towards more domestically orientated demand. Stevens underlined that there had been encouraging signs on this point, noting that growth will strengthen later this year and pick-up in 2015. But we’ve also seen this reflected in markets before the Stevens speech. During a month when concerns over China have come to the fore, we’ve seen the Aussie appreciate, which goes against the grain of the previous dynamic of the Aussie almost being seen as a proxy for sentiment on China.

For today, the US-EU summit continues in Brussels, which will keep geo-political issues to the fore. Otherwise, the main focus is on US durable goods data at 12:30 GMT. Sterling is seeing some good early buying at the European open, pushing cable up to 1.6550. Yesterday’s inflation data came in broadly in line with expectations, shifting the focus more towards the real economy indicators in terms of determining when the first rate hike will come. Overall though, with the dollar likely to be more dominant in the second quarter, sterling could struggle to push towards the highs made in the middle of February.

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