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Aussie’s Resurgence to be Capped by US Recovery

H.S. Borji
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Aussie’s Resurgence to be Capped by US Recovery

The Australian dollar continued to strengthen Thursday, building on its fresh four-month highs. The Aussie is poised to strengthen beyond its recent highs, but market experts warn its gains will be capped by a bullish US dollar, whose strength is only beginning to materialize.

The AUDUSD pair has soared 2.5 percent since March 21. On Thursday the pair pushed through new highs to trade at 0.9260, up 0.4 percent. The Aussie’s recent bout of good fortune comes on the heels of comments made by Reserve Bank Governor Glenn Stevens, who revised his growth outlook for the domestic economy on Wednesday.

The Aussie’s recent appreciation, however, isn’t expected to tip the scale in its favour, which means a rise to parity is likely out of the question. Growth concerns in China, among other things, are likely to keep the Aussie’s gains at bay.

The biggest factor limiting the Aussie is the US dollar. If last week were any indication, the forex markets are poised to drive the greenback higher the closer the Federal Reserve gets to raising interest rates. According to Fed Chair Janet Yellen, the first rate hike could come as early as Q2 2015.

In the meantime, however, the Aussie will continue to benefit from an improved outlook. The recent string of soft US data, coupled with the belief the Australian dollar has already hit rock bottom, means the down-under currency could remain in vogue over the short-term. What’s more, several market voices are convinced the Chinese government will step in to ensure GDP growth meets the 7.5 percent target for the year. As Australia’s biggest trade partner, China plays a key role in the Aussie’s price movements.

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