The Australian dollar is back above the .74 cents level against the US dollar.
“It seems like traders are becoming more positive and taking in that a strong US dollar is driven by expectations of growth and infrastructure spending in America,” said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader.
McKenna added that the recent statements from Chris Kent, Assistant Governor at the Reserve Bank of Australia (RBA), may have also buoyed up traders’ sentiment.
“The assistant governor has a very upbeat take on the economy and that’s a big factor to consider,” McKenna said.
According to McKenna, the RBA has on four occasions so far in November, had an opportunity to give the market feedback on its view on the outlook for the economy.
“And on all of those four occasions it has been extremely positive on that outlook,” McKenna said.
In a speech before economists last night, Assistant Governor Kent was very optimistic about growth. He said the drag on growth from the fall in mining investment was about “80 per cent” done and that even with massive tonnage “resource exports still have further to grow”.
It all adds up to a fairly positive outlook for the economy. One which will “contribute to a rise in domestic inflationary pressures and a gradual return of inflation to more normal levels” Kent said.
McKenna said, “That last comment is probably as important for the Aussie dollar as all that went before it. That’s because Kent is tacitly suggesting that the RBA is closing the door on more rate cuts,”
“And in the current environment that helps protect the Aussie dollar from the closing of the gap (spread) between Australian and US rates,” McKenna said.
He added that the RBA outlook has a strong directional impact on the AUDUSD exchange rate.
“Certainly, it is one factor among many – which is why it’s a directional indicator not something that drives the Aussie in lockstep. But it is a very important factor,” McKenna said.
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