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The Australian dollar is up 21 pips to 0.6913 today, which is the highest since October 2024. The Aussie benefited from a strong jobs report on Friday and the market is beginning to sniff out rate hikes.The cash rate right now is 3.60% but the OIS curve prices that at around 4.30% by the end of the year. For the immediate future, there is a better-than-even chance—roughly 63%—that the RBA will hike rates at their meeting in early February. Even if they don’t move in February, the pricing suggests a rate rise is almost guaranteed to happen by March.Looking further out, the market has fully priced in a second rate increase by September. By the time December arrives, traders are positioning for a likely third hike. Essentially, the market expects the cost of borrowing to keep rising slowly but surely all year and that’s a strong contrast to the Fed, where two cuts are priced in.Today is Australia Day and markets are closed so AUD liquidity is thinned out. If Australian markets were open, surely gold miners would be celebrating as it’s up 1.7% to a record $5067. Silver is even hotter, up another 4.8% to a record $107/oz. The mining industry is about to boom, with copper prices also near record highs.That will mean big mining investment inflows into Australia and other mining districts. I also get the sense that the FX market is looking for safe havens outside of US dollars. Normally that means the yen but with political turmoil there and the threat of intervention and massive government debt, the market is looking elsewhere. Switzerland benefits from some of those flows but low rates and the threat of negative rates are a sharp contrast to 4% cash returns in AUD.In short, there is a lot working for AUD right now and even at a 15-month high, AUD is still historically in the bottom half of the 10-year range.
This article was written by Adam Button at investinglive.com.
💡 DMK Insight
The Aussie dollar’s rise to 0.6913 signals a shift in market sentiment, driven by a robust jobs report. With the cash rate at 3.60%, traders are now eyeing potential rate hikes, which could further bolster the AUD. This uptick comes as the market begins to price in tighter monetary policy, a trend that could attract both retail and institutional investors looking for yield. The 0.6900 level is crucial; a sustained break above could lead to further gains, potentially targeting 0.6950. However, keep an eye on the broader economic indicators, especially U.S. data releases, as they could influence the AUD’s trajectory. If the U.S. shows signs of economic weakness, the Aussie could outperform, but any hawkish signals from the Fed might reverse this trend. Watch for the next jobs report and any comments from the Reserve Bank of Australia, as they could provide additional clarity on future rate movements. The market’s reaction to these events will be key in determining the AUD’s strength in the coming weeks.
📮 Takeaway
Monitor the 0.6900 resistance level closely; a break could lead to further gains for the AUD, especially if U.S. economic data disappoints.
