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Can the Australian dollar (AUD) rise further?

12:18, 22 March 2022

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  • AUD/USD

    0.68805 USD
    -0.00283 -0.410%

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Close-up of Australian currency notes against US dollar.
Coming out on top: a commodity price surge is driving the Aussie’s value against the US dollar – Photo: Shutterstock

The commodity price boom-driven rally in the Australian dollar (AUD), commonly known as the Aussie, is continuing with the currency nearly reaching its highest level versus the US dollar (USD) since November 2021. 

On Tuesday 22 March, the AUD/USD exchange rate climbed 0.45% to 0.7426. The jump came despite the US Federal Reserve’s (the Fed’s) Federal Open Market Committee (FOMC) raising interest rates last week, which typically leads to weakness in the Aussie. 

However, the surge in commodity prices has helped the Aussie become the top-performing Group of Ten (G10) currency since the beginning of the war in Ukraine. 

External factors driving the Aussie

“The Aussie looks to have been helped in a large part by a recovery in global investor sentiment. European stocks jumped as talks between Russia and Ukraine seemed to offer hope, while China and Hong Kong indexes rebounded from heavy losses as policymakers promised a range of steps to support prices,” said Sean Callow, senior currency strategist at Westpac Wire. 

“There was some domestic support as well last week. Australia’s employment numbers soared above expectations. There was no update on Australian wages growth, so the Reserve Bank of Australia [RBA] will continue to wait whether the historically low unemployment rate stokes wages growth faster than [the] forecasts,” he added. 

Going by the Commodity Futures Trading Commission (CFTC) data, the Aussie remains oversold, although Aussie positionings are increasing. 

No longer oversold

“We suspect the current market positioning on the Aussie dollar is no longer skewed to the oversold territory,” Francesco Pesole, FX strategist at ING Bank, said in a note

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With no significant domestic data scheduled to be released in the week ahead, experts believe the Aussie’s fate lies in the hands of news overseas, especially concerning talks between Russia and Ukraine. 

“The AUD was resilient overnight in the face of renewed hawkish Fed rhetoric, which saw equities weaken. Offshore forces remain the focus for the AUD,” ANZ Research said in a note. 

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