The Australian dollar slipped overnight as the increasing strength in bulk commodity prices, and an added optimism from the RBA in December, was offset by the strong broad-based US dollar and the widely anticipated weak Australian Q3 GDP report scheduled later today.
However, the Aussie had actually beaten most of its major peers except the Japanese yen.
“AUD/USD remains in much the same trading range it has been in for the past two weeks,” said Joseph Capurso, senior currency strategist at the CBA, citing that the resilience was led by higher commodity prices with the exception of oil.
During Wednesday’s trade in Asia, the released of Australia’s September quarter GDP report gave an impact on the currency.
Australia’s September Quarter
Based on the most recent reports, the Aussie declined after reports claimed that the economy had contracted by a larger-than-expected 0.5 percent in the September quarter.
Meanwhile, the local unit was changing hands at $74.74 cents, down from an earlier reading of $74.51 cents yesterday.
The Australian dollar opened as high as $74.74 cents, but declined shortly after the economic growth figures was released.
The September quarter shrinkage was larger than expected, with an economic estimate of a 0.2 percent contraction in the quarter, according to an AAP survey.
“With the market pricing in the possible adverse outcome, we should expect some reaction to the headline, but the overall risk on this trade remains symmetrical given positioning on the Aussie is light now,” said Stephen Innes, senior currency trader.
Thus, he is expecting the Australian dollar to face weighty influenced by external factors and broader US dollar move.
Aussie Fair Value Rises
The Australian dollar is currently undervalued, but anticipations for an unexpected rally to fair-value could get a bigger picture.
One of several factors is that markets could not properly priced as commodity prices are increasing, said Robert Rennie, FX Strategist.
Industrial metals such as Iron Ore, which is Australia’s single biggest export, have significantly rallied amid heightened demand and low prices given.
“Commodity prices have risen over the course of this year, reflecting both stronger demand and cutbacks in supply in some countries. The higher commodity prices have supported a rise in Australia’s terms of trade, although they remain much lower than they have been in recent years," says Rennie.
Current Stance of AUD/USD Pair
The chart below illustrates AUD/USD price movement amid the weakening Australian dollar, along with the country’s September quarter.
Given a bullish tone of the pair, market participants have begun buying the risky currencies as it is widely expected that continued strong demand in commodity prices will give a huge impact on the pair.
Further, the pair tries to break out on the upside through resistance 0.74480 in a light trading volume in today’s session.
As the illustrative chart above shows a bullish tone of the pair, market participants are recommended to still wait on the sidelines as there aren’t any supporting candle present as of writing.
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