A sharp fall for the greenback triggered by COVID-19 outbreaks and softer than expected jobs growth has sparked a rally in the local currency, which is sitting at its highest level since mid-July ahead of the Reserve Bank’s policy meeting on Tuesday.
The Australian dollar has climbed 2.2 per cent in the past week to US74.5¢ with its latest burst coming in the New York session on Friday as the US announced 235,000 jobs were added last month to America’s workforce, well short of consensus forecasts for 733,000.
That sent the US dollar to a four-week low and pushed the local currency up 0.7 per cent to a level it has largely held since, as markets brace for central banks to respond to signs of slowing economic growth and resurgent COVID-19 cases.
“A large degree of the Aussie dollar’s recent rally can be attributed to the reversal in fortune of the greenback,” agreed currency strategist at National Australia Bank, Rodrigo Catril. “The Australian dollar had been punished by the country’s delta dynamics but the currency is now gaining momentum and we think it will continue to improve in line with the vaccine rollout.”
The local currency now awaits Tuesday’s hotly anticipated Reserve Bank meeting, where market economists are tipping it to reverse its decision to taper or reduce bond purchases in the face of a deterioration in the economic outlook.
Westpac, ANZ and Commonwealth Bank expect the taper to be delayed, with Westpac suggesting that QE should instead be increased to $6 billion a week. National Australia Bank is the only big four forecaster that expects the Reserve Bank to stay the course.