The Australian dollar has rallied strongly following last Thursday’s “flash crash” and, like the Canadian dollar, is expected to outperform its peers in the near term. Investors remain willing to take on risk but the US dollar remains soft. In Asia, the yuan is expected to weaken beyond ¥7 within the next 6 months.
The Australian dollar as good as traded at $0.72 on Thursday, and as such is back at December’s median exchange rate.
During a “flash crash” on January 3rd, the Aussie traded at its weakest level in a decade, 6 percent lower at only $0.6744.
Over the past 24 hours, AUD/USD has been helped from the US dollar side by a set of dovish Fed meeting minutes—minutes in which Fed decision makers expressed a reluctance to raise interest rates—but the Aussie is also holding up well against other majors. On Wednesday, TD Research argued for a near-term return in AUD/NZD to NZ$1.1, from current rates in the mid-to-high NZ$1.05s, and ING said that commodity-sensitive currencies like the Australian dollar would continue to outperform.
Against a basket of currencies, the US dollar touched a 2-1/2-month low during Thursday’s Asian session before recovering throughout European and US business days. The greenback is expected to lose value in the coming year.
Another of the commodity majors, the Canadian dollar, is this week a “buy upon retracement” selection by analysts at the Hong Kong arm of Citibank, which is to say that, like ING, Citi believes the loonie will appreciate in value relative to the US dollar. Citi expects at least two increases to Canadian interest rates this year and these, it believes, will underpin Canada’s currency.
The Canadian dollar is 3 percent higher against its US counterpart this month on the back of a $10 per barrel, or roughly 25 percent, increase in the price of oil—Canada’s largest export. When last seen on Thursday, USD/CAD was quoted at C$1.322.
In the UK, there’s no news except Brexit news.
In the lead-up to Tuesday’s “meaningful vote” on Prime Minister May’s withdrawal agreement, GBP/USD has managed to float towards $1.28, from $1.24 a week ago, but this is more the result of a soft dollar than it is a measure of confidence in where Brexit, or sterling, is heading.
Against the aforementioned Australian and Canadian dollar currencies, sterling has given up significant ground over the past week and a half.
Traders shouldn’t expect more than a minor currency slip should May’s deal be rejected by MPs, since this is widely expected. Instead, look for the deal to be backed—an outcome that would undoubtedly send sterling soaring. In all cases, with the Brexit clock running down, expect sterling volatility to pick up in the weeks ahead.
Though Brexit and other global economic risks remain, risk appetite among investors remains strong in early 2019. A bellwether of risk sentiment for some is the Mexican peso and that climbed on Thursday to 12-week and 11-week highs against the dollar and euro respectively. USD/MXN and EUR/MXN entered the New York session at respective rates of MEX$19.15 and MEX$22.02.
In Asia, following 3 days’ worth of trade talks between Washington and Beijing, the yuan has strengthened to a 5-month high of ¥6.78 per dollar.
Though trade talks have apparently been constructive, the yuan is still expected to weaken beyond the ¥7 mark within the next 6 months, per a recent poll of analysts. To reach ¥7 would be to have the yuan at its weakest level since 2008.