Aussie dollar accelerates to near US66¢ as tailwinds build

A flurry of other tailwinds have also helped the Australian dollar in the past week, including a strengthening yuan, which Mr Catril attributed to signs of further economic support for China, Australia’s biggest export partner.

“The [Chinese] government has been very reluctant to bring out the big bazooka in terms of fiscal stimulus,” the FX strategist said. “But the government’s cumulative efforts are now starting to become more significant, particularly in the last couple of weeks.”

Mr Catril added that the Chinese government’s decision to leave its benchmark lending rates on hold last week was another signal pushing the yuan higher.

Iron ore rally continues

Rallying iron ore prices, which strengthen the value of Australia’s key export, are also driving the $A gains as signs of economic support for China buoy the demand outlook for the commodity.

In Singapore, the benchmark December futures contract rose a further 2 per cent to $US133.65 per tonne on Tuesday. Prices have now climbed more than 10 per cent since touching $US120 per tonne at the end of October.

“The improvements and support for the property sector in China have been extending this rally in iron ore, which has broken through the topside of the range, and is looking very buoyant,” Mr Catril added.

Sentiment was further buoyed on Tuesday, after Bloomberg reported that 50 Chinese real estate developers may be eligible for financing.

Iron ore rices have continued to defy analysts expectations given the regional giant’s property industry woes. Earlier this month, Guo Bin, president of China’s state-run China Minerals Resources Group, said prices had reached “unreasonable” levels for steelmakers.

In a recent note, commodities strategist for Commonwealth Bank, Vivek Dhar, also said the current price levels were “too optimistic”.

“The prospect of more infrastructure spending, even with the longer timeframe for a turnaround in China’s property sector, likely means a pickup in China’s commodity demand in H1 2024,” he added.

Markets do about-turn

Closer to home, Mr Catril added that hawkish rhetoric from the Reserve Bank following its cash rate increase to 4.35 per cent this month had also buoyed the $A.

“We’ve had a hike and now the markets are thinking, given the forecast that the RBA have delivered, another rate hike is still a live theme,” he said.

The latest minutes from RBA’s November board meeting showed the central bank was still watching data closely to determine if further tightening was needed, before adding that it remained “resolute in its determination” to return inflation to target.

Steven Dooley, a currency strategist at FX house Convera, said that within a couple of weeks the RBA had gone from appearing the least likely to raise rates among global central banks, to perhaps the most likely.

“What’s most interesting at the moment is the complete 180 in terms of where the market thinks the next interest rate hike is going to come,” he said.

Mr Dooley said if more signs emerged that the Fed was done raising rates, it could provide further support to the Australian dollar, as flows to risk assets like equities return.

“The Australian dollar is closely tied to risk sentiment as it’s driven by expectations for global growth. So as equity markets go up, its tends to move higher as well,” he added.