Aussie dollar bursts through US80c at three-year high

The Australian dollar broke above the key barrier for the first time in three years on Thursday night amid expectations of an economic recovery from the coronavirus pandemic.

On the move: Australian dollar moves past US80c

The Australian dollar burst above US80c for the first time in three years on Thursday night as expectations of economic recovery from the coronavirus pandemic buoyed commodity prices and interest rate differentials widened in Australia’s favour after a sharp rise in domestic bond yields.

After breaching US80c in early London trading, the local currency reached a high of US80.06c.

It came as the Nordic currencies and the euro led gains in most currencies against the US dollar.

Bloomberg’s US dollar index edged down to a five week low after dovish comments from Fed chairman Jerome Powell this week reassured investors that the US central bank is a long way from reducing its bond buying program or lifting interest rates.

National Australia Bank’s senior FX strategist, Rodrigo Catril said a move above 80 US cents was “fully consistent with our valuation models”.

Unless faith in full economic re-opening in a post-vaccine world in the second half of 2020 proves misplaced the Aussie could hit 85 US cents over 12 months, he added.

After diving about 20 per cent during the coronavirus pandemic, the Aussie has risen 45 per cent from a 17 and a half year low of US55.10c as the price of iron ore – Australia’s largest export – more than doubled to about $US170 a tonne and the US dollar index fell about 15 per cent as the global risk appetite improved with unprecedented stimulus and the advent of highly-effective COVID vaccines.

Also on Thursday, Australia’s 10-year bond yield rose 12 basis points to 1.73 per cent – its highest daily close since May 2019 – widening the spread over equivalent US Treasury yields to 29 basis points, the most since September 2020.

It also came as London Metal Exchange copper futures rose 1.2 per cent to a nine-year high of $US9,340 a tonne and West Texas crude oil futures rose 2.9 per cent to a 12-month high of $US63.47 a barrel and strong capital expenditure data gave upside risk to December quarter economic growth data due next week.

Westpac currency strategist, Sean Callow said the Reserve Bank will likely stress that it will be a long road to a labour market tight enough to drive wages growth to 3.5 per cent, consistent with inflation returning to the mid-point of its 2-3 per cent target band.

“The RBA is unlikely to provide encouragement to those pondering tightening ahead of the guidance provided last month,” he said. “Still, positioning for a global rebound should keep Australian dollar well supported on dips, with scope for US80.50c plus multi-day.”

Originally published as Aussie dollar bursts through US80c at three-year high