Dollar extends gains above US74.5c in afternoon trade

The local unit extended gains in afternoon trade, firming as one of the best performing currencies right now.

Westpac said it was too soon to abandon the idea that stimulus unleashed by the Trump White House will lift the world’s biggest economy, weighing on the Aussie.

The Australian dollar was trading at its highest levels in a month Thursday after the greenback slumped amid fresh scepticism in global markets about the Trump White House’s economic policy intentions.

At 3.40pm (AEDT), the Australian dollar was trading at US74.59 cents, up from US73.80c at a similar time on Wednesday.

The gains make the Australian dollar one of the best-performing global currencies at the moment, a reversal of recent weakness.

In an overnight press conference, US President-elect Donald Trump spoke widely but failed to give markets more detail around his administration’s plans for economic stimulus, trade policy and taxation.

Mr Trump left a veritable laundry list of questions unanswered for markets, said Westpac Bank in a note to markets. “The news conference was a far cry from the market-friendly, pro-growth comments that Trump delivered at his acceptance speech on November 9,” it added.

The absence of economic commentary saw the US dollar slump and US Treasury yields fall, reversing the major force in global markets evident since early November when Mr Trump unexpectedly beat Hillary Clinton to the Presidency.

Still, Westpac said it was too soon to abandon the idea that stimulus unleashed by the Trump White House will lift the world’s biggest economy.

If Mr Trump delivers, US interest rates are set to rise sharply higher over the next two years and US bond yields will increase. All that equates to a lower Australian dollar.

All eyes are now fixing on his inauguration speech on January 20 which will be scripted, and is therefore likely to more deliberately touch on matters most pertinent to global currency and bond markets.

Mr Trump was elected on a platform of “making America great again” via job creation and large-scale infrastructure spending, protectionist trade policies and immigration control.

Some economists have pointed out the inherent contradiction in some of what has been promised.

Even first-year economics students can see the contradiction in promises by the incoming Trump administration of job creation while also erecting trade barriers, said Michael McCarthy, chief market strategist at CMC Markets.

“There is a growing fear that recent positive moves are based on bombast, and could unravel very quickly,” he added.

The Australian dollar is currently among the best performing major currencies globally, having been a laggard over recent months.

Further support for the Australian dollar is coming from high commodity prices, including stronger iron ore and oil, traders said.

Following the higher trend in bulk ore prices, global mining stocks have lifted providing the Australian dollar with something of an early 2017 tailwind, said Richard Grace, the head of global currency strategy at the Commonwealth Bank of Australia.

Stephen Innes, senior currency trader at OANDA Australia and Asia Pacific said the reaction of commodity markets to the doubt around Mr Trump’s policies will shape direction in the Aussie dollar ahead of the weekend.

Dow Jones newswires