The Aussie dollar ended last week at its highest close for nearly two and a half years – after touching 81.20, the highest since the start of 2015 on Friday night.
Contrary to what many local analysts think, the dollar’s rise has nothing to do with local business and economic activity – it is the result, almost solely, of the steady slide in the value of the US dollar for much of this year.
That slide has accelerated in the past two weeks thanks to fears about the impact of firstly the impact of Hurricane Harvey, and now Irma (they might delay an expected rate rise this year from the US Federal Reserve), and a growing belief president trump will not get his tax and other pro-business policies through.
The three month extension in the US debt ceiling stopped a developing surge in short term rates on Thursday, while any doubts about the health of the US economy have faded.
The resignation of the Fed’s deputy chair, Deputy Chair, Stanley Fischer raised doubts about the timing of the next rate rise and came on top of those gathering fears about the timing of the next rate rise (December) ahead of next week’s two day meeting.
And while some investors have looked to buy US dollar assets (such as gold or dollars) because of fears about North Korea, the impact of that safe haven buying as been more noticeable in the yen and euro (where stronger economic growth is well underway).
So Friday saw the US dollar touch its lowest level in 33 months, succumbing to pressure from a combination of market concerns, ranging from hurricane damage and North Korea to the composition of the Federal Reserve and its policy direction.
The dollar index measuring the dollar against a basket of its major peers fell 0.5% on Friday to touch 91.011, a level not seen since January 2015.
The latest drop extends a decline that began in early January and now runs to a drop of 12% for 2017.
The Australian dollar is up 12.2% since the start of the year against the greenback, but the trade weighted index is only up 5.2% in the same time as the euro and the yen have risen strongly against the US currency.
After a week dominated by the European Central Bank meeting and the prospects of slowing its bond purchases (which helped boost the euro), investors found a large field of other reasons to sell the greenback. And they will still be there this week. The Bank of England monetary Policy decision won’t have an impact.
