​​Aussie dollar continues to surge as risk-on sentiment returns

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The Australian dollar continues its rally and now trading above the .76 cents mark.

“The Aussie dollar’s rally ignited yesterday after ex-RBA board member (John Edwards) said central banks are already thinking of interest rate hikes that will continue for several years,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.

He added: “That may be an over-optimistic statement, but what’s important is that forex traders have embraced it. And now the Aussie dollar is on the cusp of moving higher.”

According to McKenna, “When you throw in the rally in commodities, the rise in risk appetite coming back to the market, the technical outlook and a weak US dollar, you can see why the Aussie is sitting where it is this morning.”

He added: “The Aussie might just surprise everyone and catch up with the majors.”

He also explained that Edwards’ comments are in line with what the Reserve Bank of Australia (RBA) and the Australian Treasury have been saying.

McKenna said: “Many have argued Edwards has over cooked things a little. But what’s important is that his comments, his path for interest rate he says are based on an expectation that “within three years Australia’s economic world has returned to more-or-less normal, with wages growth of 3.5%, inflation of 2.5%, and output growth of 3%”.

In the meantime, the Aussie dollar is on the cusp of a breakout now that 0.7640 is being attacked.

“If the Aussie can take out last night’s high at 0.7644 then we might be in for a run toward 0.7735/40,” McKenna said.

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In Europe and the UK, McKenna noted that “after igniting a rally the previous night European Central Bank (ECB) President Mario Draghi sent his minions out to unwind it. That hit Euro but the buyers came back swiftly.”

He also noted that comments from Mark Carney at the BoE and Deputy Governor Lynn Patterson of the Bank of Canada (BOC) saw Sterling and the Canadian dollar roaring.

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