The Australian dollar pushed above US80 cents early Thursday, extending a powerful upswing in the currency that has seen it climb US5 cents in a little over a month. The currency is now at around a four-month high against its US counterpart.
The Aussie spiked as high as US80.2 cents before settling back to about 79.6 cents as traders on Wall Street fretted over the potential for a US government shutdown should policymakers prove unable to agree on a long-term funding plan by the Friday deadline.
Worries around the potential economic damage from a full shutdown "has perhaps been one factor - even if only at the margin - that has seen the market shun the US dollar of late," ANZ economist Felicity Emmett said. Reports emerging overnight suggested that even a stop-gap measure to extend funding for four weeks had gained little momentum.
The recent upward momentum in the Aussie owes more to surprising weakness in the greenback in recent weeks, NAB head of FX strategy Ray Attrill said. The local dollar has barely moved against other currencies such as the euro, pound and Kiwi dollar.
"This whole move up from early December is reflecting broad-based US dollar volatility," Mr Attrill said. The reasons for that acute weakness are less clear.
"We are all head scratching our heads a little as to why it's been quite so weak," Mr Attrill said, although talk of monetary policy normalisation from major central banks such as the ECB and Bank of Japan has played its part.
"The view is that other central banks are so far away from what could be regarded as normal policy that they need to take far more action [than the US Federal Reserve] to get back" to more normal policy settings, Mr Attrill said. "To some extent that is why the dollar is struggling to perform."
Push from commodities
A strong rise in the price of key commodities such as oil, gold and metals in recent weeks has also spurred Aussie outperformance, although that again reflects greenback weakness as these commodities are priced in US dollars.
Mr Attrill said he believed the recent buying and selling in US dollars has been from "hot money" traders, suggesting the recent falls may not be sustained in the near future. Longer term, more fundamental factors should come into play and pull the Aussie lower into 2018.
"The big picture view is that Aussie interest rates are at or below US equivalent all the way out to two-years," Mr Attrill said. "That has historically been a portent of a much weaker Aussie dollar, and we still think that will come come into play."
"We are likely on borrowed time, although the risk is that the US dollar weakness becomes entrenched and commodities stay high."
The currency was largely unmoved after ABS data showed a slight tick higher in the jobless rate.
