You only have to look at AUD/JPY to see the huge turn-around in the fortunes of the Aussie so far this week to see how resilient the Australian currency is proving to be. Around two thirds of the Aussie’s near 8% depreciation vs. the yen has been reversed, aided by a stabilisation of events in Japan and also supported in the generally weaker dollar environment where risk assets are managing to stage a recovery.
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Against the dollar, the Aussie has now managed to push back above both its 50 and 100d moving averages, with this year’s breaks below the parity level always proving to be relatively brief affairs. Two other factors are also proving supportive for the Aussie.
Firstly, there is the steadier footing to Asian stock markets, with the MSCI Asia stocks index having pulled itself off the five-month low seen towards the end of last month. Even before this recovery it was noticeable how the Aussie, which had been tightly correlated to emerging Asian stock markets through 2010, had decoupled for most of this year to date, largely brushing aside the near 8% MSCI decline seen during the first two months of the year.
The second factor is the recovery in commodity markets. That said, oil and other commodities have struggled to profit from the impact of Japan’s nuclear situation but Australia has the potential to benefit from a switch in energy sources, especially as Japan currently faces month of rolling blackouts. If larger scale energy substitution is seen, then this should serve to underpin the already resilient Aussie.
Simon Smith, Chief Economist
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