Aussie extends rally vs. euro on safe-haven demand
SAN FRANCISCO (MarketWatch) -- The Australian dollar rose further into record territory against the beleaguered euro on Thursday as Germany's Bundesbank reportedly became the latest central bank to increase exposure to aussie-denominated assets.
The Australian dollar's strength "is a reflection of the safe-haven flows that we are seeing around the world, except in the Aussie's case its being driven by reserve managers. Reserve managers continue to anxiously diversify out of the euro and into the Aussie," said Brad Bechtel, head of sales at Faros Trading LLC.
In late U.S. trading, the euro (EURAUD) bought $1.1767 Australian dollars, down 0.8% from the previous session. The euro has been testing new lows against the aussie.
The Australian dollar (AUDUSD) also gained 0.6% against the U.S. dollar to $1.0432.
"Prior to this month, the euro/aussie had never touched 1.20 in the lifetime of euro (since 1999). Today we are below 1.18," said Greg Anderson, a G10 currency strategist at CitiFX, in a report.
The Bundesbank is expected add Australian dollar assets such as government bonds to its foreign reserve holdings before the end of September, the Wall Street Journal reported Wednesday.
So far, 30 central banks have diversified into Australian assets within the last year, the newspaper said.
The newfound status of the Australian dollar, or the aussie, as a central bank favorite has paved its way into the Wall Street Journal Dollar Index (BUXX) , which launched on Wednesday.
The index, which measures the dollar against a basket of other major currencies, including the euro, yen, U.K. pound, and Australian dollar, aims to improve on existing indices, such as the ICE dollar index (DXY) , by basing its value on up-to-date turnover by all participants in the foreign-exchange market.
"Better economic data, a less dovish Reserve Bank of Australia and hopes of easier Chinese policy are all keeping the aussie firm," said Kit Juckes, head of foreign exchange at Societe Generale.
A string of economic data that surprised on the upside has scaled back expectations of a rate cut by the RBA in August, according to currency strategists at Brown Brothers Harriman.
"Data released over the past month suggested that the domestic economy had been growing more strongly since the middle of 2011 than had previously been indicated," the RBA said in the minutes of its latest policy meeting.
Meanwhile, expectations of further easing by Chinese authorities to forestall a sharp slowdown of the economy is likely to keep the aussie buoyant, Juckes said.
"On a technical basis, the euro/aussie pair has reached uncharted territory," said Bechtel. He sees the euro sliding to $1.15 Australian dollar before support emerges while the aussie/greenback pair is likely to encounter resistance at $1.05.