Australian dollar surges to six week high, driven by economic optimism; breaches US 73 cents mark

The Australian dollar surged past US73¢ on Tuesday night, in an amazingly impressive rally despite the steady slump in iron ore prices. At 10.30am on Wednesday, the currency traded at US73.26c, up from US72.58c a day before.

The currency has gained 3 US cents over the past three weeks, and added 4 US cents since the September low at US69.08¢ before it hit US73¢ plus on Tuesday night.

The Sydney Morning Herald, in a report, called it gravity a defying run of the Aussie despite the slump in Australia's major export, iron ore that is down 13 percent over the same period to decade-lows of US$42.24/tonne. The contrast is that evean as the iron ore price fell nearly 30 per cent since mid-September, the dollar has gained 6 percent.

RBA cash rate

It is assumed that the decision of Reserve Bank of Australia on Dec. 1 to hold its official cash rate target at 2 per cent also contributed to the dollar rally. It was an indication of economic optmism and a testament that the current monetary policy settings are fine.

Snap shot

One Australian dollar buys:

- 73.30 US cents, from 72.58 cents on Tuesday

-68.93 euro cents, up from 68.58 euro cents

In recent weeks, Aussie has been marking a trend similar to the US dollar, noted NAB currency analyst Rodrigo Catril. The surge of US dollar has now been temporarily stumped by the latest US manufacturing activity that showed a big decline in production activity since mid-2009.

“While the Australian dollar is already in an upward trend following Tuesday's solid October building approvals number, the overnight fall in the US ISM manufacturing index to 48.6 triggered a broad base US dollar sell-off and provided another leg up to the Aussie,” Catril said.

GDP Growth

The Wall Street Journal in a report attributed the Aussie’s advance to the news of strong economic expansion in Australia. The report said Aussie dollar has now drove up to the highest level since Oct. 15, after the Australian Bureau of Statistics indicated that gross domestic product in the third quarter grew 0.9 percent vis a vis last quarter and 2.5 percent from the corresponding data in 2014.

The economic growth in the immediate past quarter is the result of surge in commodity exports that was forecast by many economists.

Overall, the Aussie dollar’s strength has been clocking an impressive rally compared to other peers, such as the euro, the pound and the yen. Now the European Central Bank's meeting on Thursday is eagerly awaited and it is likely to announce more stimulus, the SMH report noted.

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