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Australian Dollar Starts Trading Weak, Races to Top Later

February 17, 2021 at 8:58 by Vladimir Vyun

Australian coins and banknotesThe Australian dollar started today’s trading weak against the US dollar and other most-traded currencies, though not all of them. In particular, the Aussie managed to gain on the Swiss franc and to reverse yesterday’s losses versus the New Zealand dollar. But at the time of writing, the Aussie not just managed to rebound to the opening level, it has been trading as one of the strongest currencies on the Forex market.

The six-month annualized growth rate in the WestpacMelbourne Institute Leading Index (which shows the likely pace of economic activity relative to the trend three to nine months into the future) rose from 4.24% in December to 4.48% in January. Westpac predicted that the Australian economy will grow by 4% this year. The forecast is close to the prediction of a 3.5% rate of growth made by the Reserve Bank of Australia. As for monetary policy, Westpac expects that the RBA will extend its bond-buying program beyond October but the Term Funding Facility “will be largely scaled back after June”.

RBA Assistant Governor Christopher Kent was speaking at the Finance & Treasury Association’s FX roundtable webinar today. He talked about the impact of the central bank’s monetary policy on the Australian dollar. Specifically, he stated that stimulating measures introduced by the RBA put downward pressure on the Australian currency, and while the Aussie has appreciated, the appreciation could have been much bigger if not for the central bank’s policy. As for reasons for the currency’s appreciation, he said the following:

In particular, there has been a general improvement in the outlook for global growth, which has been associated with an appreciation of a range of currencies against the US dollar and a marked increase in many commodity prices. Indeed, the price of iron ore has increased by around 40 per cent since early November.

AUD/USD traded at 0.7761 as of 8:53 GMT today after opening at 0.7758 and falling to the session low of 0.7730. EUR/AUD sank from 1.5604 to 1.5545 following the earlier rally to the session high of 1.5635. AUD/CHF jumped from 0.6918 to 0.6950, trading near the highest level since July 2019. AUD/NZD rallied from 1.0752 to 1.0779.

If you have any questions, comments, or opinions regarding the Australian Dollar, feel free to post them using the commentary form below.

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