The Australian dollar gave back all of its pre-US Federal Reserve decision gains throughout Thursday, and slumped lower still despite upbeat comments from the RBA governor.
But the Aussie stayed firmly around its US80?? mark.
The local currency touched a high of US81.02?? just before the US Federal Reserve kept interest rates steady and announced the unwinding of its enormous bond buying program on Wednesday night. The US dollar rocketed higher, sending the Aussie tumbling back below US80??.
An uptick in oil markets gave commodity currencies a lift in early Thursday trade, but investors sold off the Aussie in the afternoon as RBA Governor Philip Lowe warned markets could not rely on accommodating monetary policy forever.
The Aussie was fetching US79.74?? in late afternoon trade.
A general optimism around the global economy and the prospect of the US further tightening interest rates has provided support for the Aussie which has traded stubbornly around US80??.
"There's a synchronised global upswing in sentiment and the Aussie is always sensitive to global growth," says Besa Deda, chief economist at St George.
'Improving mood'
"There's also an improving mood around the Australian economy, shown in the decided shift this year about how the RBA might be seeing things. This time last year the market thought there might be another cut, now investors are actually pointing to a rise."
Persistently low global inflation has kept the lid on central banks tightening monetary policy, despite positive signs of growth within developed economies.
But the US Federal Reserve this week signalled that it is comfortable enough in the US economic recovery to begin normalising its balance sheet from October and upgraded its US growth and employment forecasts, despite the low inflation reading.
Australian inflation is also below the desired RBA range of 2-3 per cent, but strong employment data and a pick-up in business spending has the market now pricing in two rate hikes before October next year.
"A more positive feel about the economy and a lift in commodity prices are likely to provide ongoing support for the Aussie for a while yet," says Sean Callow, senior currency analyst at Westpac.
"The market is bracing for two more rate hikes, and while part of what's keeping the Aussie up is global, it's largely around whether solid employment data will change the RBA's mind."
Australia's job market has been a bright spot for the economy, with more than 250,000 jobs created in the past six months, three-quarters of them full-time positions.
Commodity boost
Offsetting the strength of the US dollar is a broad pick-up in oil prices, which have steadily edged higher this quarter, giving commodity currencies around the world further buying support.
Crude oil markets are heading for their largest third quarter gain in 13 years after the Iraq oil minister suggested OPEC was considering extending or deepening output cuts.
And while iron ore has slumped to its lowest level in almost two months, experts say this is unlikely to significantly dampen the Aussie, as the price of Australia's largest export has recently traded much higher than long-term expectations.
"While moves in iron ore may drive some near-term volatility in the AUD, we don't expect the impact to be large or persistent," says Daniel Been, senior currency strategist at ANZ.
"Sentiment in financial markets continues to remain boosted by low volatility and the positive outlook for global growth - and this too is supportive."
