The Australian dollar has extended its gain to 77 pips on the day to 0.7150. That's the best level since 2023 and only a handful of pips away from the best levels since June 2022.
I have been beating this drum for awhile but there continues to be much to like about the Australian dollar:
1) Commodities
This is the obvious one as there is a bull market in metals right now and Australia is a major producer. Yes, iron ore isn't exactly booming but Australia is a mining superpower and money will be flowing into greenfield projects in gold and other metals. Australia also has huge reserves of natural gas and unexploited oil potential.
2) The trade war
Australia has done a masterful job of playing all sides in the trade war. It rolled over on US tariffs largely because it does very little trade with the US. Meanwhile, it's managed to transition to Chinese EVs without upsetting the US and has mostly managed the relationship with China. In short, it seems as though everyone wants to be Australia's friend and in a world that's less-friendly that it's been in decades, that's a big tailwind.
3) Housing
Home prices in Australia have been remarkable resilient and that's helped it avoid some of the economic weakness that's crept into Canada. I'd argue that there is eventually a price to pay for housing unaffordability but while the music is playing you need to dance.
4) RBA rate hikes
The RBA hiked rates already this year and there is another 60 bps priced in for this year. That will get the RBA close to 4.50% and in a world where Trump is trying to stack the Fed to get rates below 3%, that could be meaningful carry.
Justin earlier highlighted the March 17 RBA meeting.
While broader markets are focused on the US-Iran conflict, just be mindful that the central bank bonanza will return next week.
In that lieu, the RBA was the first major central bank to pivot back to rate hikes amid sustained inflation fears. And with higher oil prices threatening higher inflation pressures globally, that might compel the central bank to act even quicker in their pivot... the aussie looks primed to capitalise amid a very strong argument for the RBA to keep policy divergence in the currency's favour.
That was a good call and continues to be. The main risk is that both China and the US economy will stall, dragging down the global economy with it. Those risks rose with the Iran attacks but with Trump already signalling a TACO, the risks are worth the reward.
Technically, if it can break the 2023 high of 0.7157, there isn't much standing in the way of 0.7600.
