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Australian dollar tumbles after hitting three-week high


By Jens Meyer

The Australian dollar has fallen back to earth after a wild night that briefly saw the currency hit a three-week high, before slumping nearly a whole cent.

Boosted by better than expected Chinese trade data and the European Central Bank's decision to keep monetary policy unchanged, the Aussie rose as high as 77.32 US cents overnight. 

The Australian dollar rose as high as 77.32 US cents before crashing back to earth. Photo: Dominic Lorrimer


Currency traders were surprised by ECB chief Mario Draghi downplaying the need for more monetary stimulus in the eurozone, at a time when concern over the impact of Brexit on the region is mounting while inflation and growth remains anaemic.

The ECB rhetoric initially spurred a jump in the euro, which was closely tracked by the Aussie dollar, already buoyed by Chinese imports rising more than expected in August.

But the Aussie slid just as quickly, falling to a low of 76.36 US cents this morning, before stabilising around 76.5 US cents mid-morning.

The falls closely tracked a similar drop in the euro, but NAB said that comments by RBA chief Glenn Stevens may have exacerbated the plunge in the local currency.




 Mr Stevens told The Australian Financial Review that the Aussie is close to fair value at its current level, but added the currency "could give us trouble" if it appreciated, a warning that seemed to play some part in taking the dollar back below 77 US cents, NAB senior economist David de Garis said.

Mr Stevens also made the point that it's "my position, in recent times, it (the AUD) has been adjusting as it should". 

Westpac senior market strategist Imre Speizer said that while the US dollar is expected to falter in the month ahead, the reverse may be true for today.

"The 77.30-50c area is proving sticky. The overnight correction could extend lower to 76.00 today," he said in a note.

AxiTrader chief market strategist Greg McKenna agreed that selling had once again set in as soon as the currency passed the 77c-level but added that the main focus in currency markets was clearly on the euro.

"All eyes were on ECB President Mario Draghi last night when he said the QE program has not been discussed. And some traders and market observers took that as a sign that the QE could be ending," McKenna said.

Looking ahead, traders said it was likely the currency would continue to trade in a tight range ahead of another US Federal Reserve official's speech on Monday.

Markets are looking for clues when the US central bank will next lift rates, but the odds for a September move have widened considerably over the past week after some soft economic data.

"If (Fed board member Lael) Brainard comes across with a unified stance on the September Fed lift off, it could add a lot of credibility to the September rate hike debate," said OANDA senior currency trader Stephen Innes.




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