June has been a very successful month for Aussie bulls, following the severe battering suffered last month. After plunging below 0.96 on the first trading day of the current month, the AUD has since traded higher consistently, now nearing 1.02. Over the past couple of trading sessions the Aussie has easily penetrated the 50d moving average and looks poised to attempt a run on the 200d moving average, currently around the 1.0250 level.
Both domestic and international forces have contributed to the improvement in fortunes of the Australian currency.
Firstly, after accumulating record short positions in the Aussie at the end of May, traders and short-term speculators have scrambled to cover as the currency has abruptly changed direction.
Secondly, domestic fundamental news has been more favourable than expected. First quarter GDP soared by more than 1% and jobs’ growth last month was quite robust. After lowering rates in both May and June, last night’s RBA Minutes suggested that the Bank is in no hurry to deliver any further monetary medicine for a while. Although the RBA still has an easing bias, these Minutes scuppered expectations at the front end that they might be disposed towards a further relaxation.
Thirdly, the ranks of the AAA-rated sovereign universe are thinning out rapidly and many investors harbour justifiable doubts over some of those who have managed to hold onto the top rating (such as the US and the UK). By contrast, as Moody’s made clear recently, Australia remains one of the world’s strongest sovereigns, with very low government debt, strong institutions and healthy overall financial strength. Evident over the last couple of weeks is that the currency has benefitted from some very large orders from foreign money managers keen to avoid the perils of investing in the major currencies.
For now, the Aussie bulls are riding roughshod over the bears.