A surge in commodity prices as well as a booming equity market has sent the Australian dollar to a five-week high versus the US dollar.
After a rally over the past few weeks, the Australian dollar peaked to 74.37 US cents during early morning trading on Monday, before settling to around 74 US cents during late afternoon trading in Sydney.
Over the past five weeks, the Australian dollar had slipped to a low of 71.72 US cents on 30 September after fears that Evergrande’s financial problems might destabilise the Chinese financial sector and its economy.
Commodity price surge
However, a power shortage in China has sent prices of coal and many other commodities surging, leading to benefit the Australian dollar.
“The squeeze on industrial metals and energy continued last week…This is presumably not the scenario speculators were counting on in September when China’s stressed property market was in close focus,” Sean Callow, senior currency strategist at Westpac, wrote in a note.
According to Callow, several hedge funds built their most bearish AUD positions since 2015. “If the Aussie keeps ratcheting higher, these funds could be pressured to buy back the currency, adding to its upswing,” he added.
“Stellar run” for the Aussie
OFX, an Australian foreign exchange and payments company said in a note that the Aussie dollar has enjoyed a “stellar run” recently.
“It found its feet last week on the back of upbeat equity market movements, which in turn were spurred on by better-than-expected quarterly earnings and retail sales figures…Adding further support to the Aussie is reports that Chinese central bank expects risk of contagion from Evergrande’s collapse as controllable.”
According to currency strategists at Dutch lender ING, the aussie has been at the forefront of the “commodity currency rally”.
RBA policy pledge
“Markets largely overlooked some quite grim jobs data in Australia, which clearly showed the deep impact of recent Covid-19 restrictions in the country.
“Other data releases are set to feel the drag of the summer Covid crisis, but it is possible markets are already factoring a period of bad data, and given the RBA [Reserve Bank of Australia] has already pledged to keep policy on hold until February, there may be only a contained amount of damage an unsupportive data flow can do to AUD,” ING said in a note.