Cautious trading in foreign exchange markets has seen the Australian dollar pare back some of its recent loses, with the currency bouncing back slightly.
Currency strategists said investors were continuing to reduce their exposure to risk positions in the market ahead of the US Federal Reserve’s monthly meeting next week.
The local currency fell below US91¢ in late trade on Tuesday but edged higher on Wednesday, trading around US91.50¢. It was buying US91.37¢ late Wednesday.
Financial markets have become increasingly comfortable with the possibility that the Fed could start trimming back its bond-buying program as soon as next week following a spate of improving US economic data, although the odds of a December taper are not considered that high, NAB’s co-head of currency strategy, Ray Attrill, said.
“We’ve bought the rumour and now we are selling the fact - before the fact,” Mr Attrill said.
“We are really seeing a reversal of the move we’ve been seeing in the last few weeks.
“The short yen trade has become pretty crowded, and it’s pretty evident from ... the IMM futures positioning data. Similarly, the market is pretty short [Australian] dollar and sentiment has been pretty negative and that’s been reflected in a lot of speculative shorting of the currency.”
The currency’s recent buoyancy is in part due to the failed attempts to push it below US90¢ last week, RBS senior currency strategist Greg Gibbs said.
“It has fallen a long way since the high in October. So arguably you had already priced in many of the factors that were weakening the Australian dollar. So this is kind of a profit-taking bounce without any significant news behind it,” Mr Gibbs said. The dollar rose above US97¢ in late October.
Markets are also turning their attention to the release of local November unemployment data on Thursday. On Tuesday, Reserve Bank is set to publish its December board meeting minutes, while its governor Glenn Stevens will appear before a House of Representatives committee in Canberra the following day.
At the same time, China will release its November foreign direct investment data on Saturday.
“There’s still a heavy focus on financial conditions in China, which is probably one of the key factors why the currency has been under pressure for the last two months,” Mr Gibbs said.”[There’s] a few factors that might encourage the market to be more cautious with holding extensive positions into those events.”
The strength of the Australian dollar was again under the spotlight on Wednesday, after Holden’s parent company General Motors said in its statement on ceasing manufacturing in Australia by 2017 that the currency had made production in the country much more expensive than a decade ago.
“Since 2001, the Australian dollar has risen from [US50¢] to as high as [US110¢] and from as low as 47 to as high as 79 on the Trade Weighted Index,” General Motors said.
“The Australian automotive industry is heavily trade exposed. The appreciation of the currency alone means that at the Australian dollar’s peak, making things in Australia was 65 per cent more expensive compared to just a decade earlier.”