The Australian dollar's year-to-date performance against the U.S. dollar (NYSEARCA:FXA) is back to even. The leading "risk-on" currency has fought back from a large one month slide that featured losses of as much as 8.5%. It was also a time when the economic data seemed to confirm a weakening Australian economy. The numbers since the recent bottom now seem to indicate that the economy is just fine. Indeed, in its latest monetary policy decision, the Reserve Bank of Australia (RBA) seemed much more concerned about macro-economic forces beyond its borders than domestic developments. The end result is a currency that has shown considerable strength over the past month.
Against the U.S. dollar and Japanese yen, the Australian dollar has almost erased all its May to June losses. However, against a host of other currencies, the Australian dollar has performed a lot better. Only the New Zealand dollar has kept up with the Aussie over the past month. The following charts display the various performances (I have included stochastics for the technically-oriented crowd - note the extreme overbought/oversold conditions of most of these currency pairs).
The Aussie is even again with the USD for the year
The Aussie is actually out-performing its fellow commodity-heavy cousin the Loonie (the Canadian dollar)
The Australian dollar is again up for the year against the Japanese yen and looks ready to breakout
The New Zealand dollar is still out-performing the Aussie for the year
The euro is of course a big loser for the year and the Aussie is back to its best 2012 levels against the hapless currency
Dreams of being a safety currency are long gone as the British pound has slid fast and hard against the Aussie
At the same time the Australian dollar has come roaring back, it has maintained the near perfect correlation it re-achieved with the S&P 500 (NYSEARCA:SPY) in May after three months of divergence. Thus, the Australian dollar in a sense is confirming the S&P 500′s comeback from the June low. I continue to look for divergences that could flag an imminent change in the nature of the stock market's rally.
Until then, I maintain my bearish bias against the Australian dollar that I re-established after the currency hit my relief rally target at parity with the U.S. dollar. I tweeted on Wednesday that I even sold a hedge in my long AUD/USD position. The RBA reminded anyone who chooses to listen that it thinks the currency's value is too high, and China's slowdown appears official as the government continues to ease monetary conditions. At some point, easy money should once again drive higher commodity prices for Australia, but the path from here to there should be very volatile. It is of course far from clear what the "new normal" will be once the easing cycle finally ends.
Be careful out there!
Disclosure: In forex, I am net short the Australian dollar.