Traders were rather pessimistic about the Australian dollar at the start of this week, making it surprising to see that the currency ended the week with solid gains. The Aussie rallied mainly on overseas news, not domestic fundamentals.
The Australian currency started the week poorly and market analysts have thought that the Aussie would fall to new lows. The main concern was a possible interest rate cut by the Reserve Bank of Australia. Indeed, the RBA slashed borrowing costs, but it looks like many traders used the strategy “sell the rumor, buy the fact”, pushing the currency down ahead of the negative event, and driving it up after the expected event occurred.
Truth be told, the Australian dollar largely ignored domestic reports that were not that shiny. The currency paid more attention to news from China, which were quite good. The resulting optimism allowed the Aussie to outperform the sterling, which was not as firm as it should have been considering supportive Britain’s data, and the yen, which was very strong after policy makers refrained from expanding stimulus.
AUD/USD jumped from 0.8915 to 0.9189 after reaching the weekly low of 0.8846 — the lowest since August 2010. EUR/AUD slid from 1.4881 to 1.4518 and GBP/AUD dropped from 1.7132 to 1.6870. AUD/JPY rose from 88.16 to 88.38, rebounding from the low of 86.39.
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