The Australian dollar swung sharply overnight as traders weighed the support for the currency from a powerful commodity price rally against a sharp rise in US bond yields following president-elect Donald Trump's surprise victory.
The Aussie climbed as high as 77.4 US cents on Thursday night as traders jumped into the currency after iron futures in China surged by their 9 per cent limit and as copper prices enjoyed their best back-to-back gain since 2013.
But after spot prices in the bulk commodity settled a massive 4.4 per cent higher at a two-year high of $US74.12 a tonne, the local currency went backwards.
The Aussie dropped as low as 75.68 US cents in early Friday morning trade as investors' attention switched to further falls in US Treasury bonds, where investors extended their bets that Mr Trump's policy platform would prove both highly stimulatory, which would boost growth and inflation, as well as very expensive, which would worsen the US government's financial position – both reasons to sell Treasuries.
The US dollar continued to firm as a result. The Aussie dollar reached a peak of 77.8 US cents ahead of this week's election, but has since eased to last fetch 76 US cents.
And the rise in the greenback may have further to run, CBA currency strategist Elias Haddad said.
"We anticipate the US dollar will make new cyclical highs against most major currencies under a Trump administration," Mr Haddad said.
"Trump's economic policies are inflationary and will force the Fed to raise the funds rate at a faster pace than otherwise."
"Moreover, capital inflows to the US will increase under a Trump administration because the cut in the company tax rate will bolster the US equity market and generate a repatriation of US profits back into the US economy."
'Serious questions
While the currency has proved resilient in recent days, the US election result "will have a lasting and negative impact on the Aussie," ANZ head of currency research Daniel Been said.
Mr Been pointed to contrasting fortunes of the Aussie versus the steep decline in regional currencies, where fears of a stronger US dollar have outweighed the positive impact of strengthening commodity prices. But Mr Been said "the sustainability of this divide is very questionable".
"Ultimately, given the importance of low bond yields to the flow of funds over the past cycle, we would interpret the price action in emerging markets, if sustained, as a leading indicator for the Australian dollar."
Also moving sharply overnight was the US oil price, which snapped three days of gains. WTI crude fell 2.8 per cent to $US44.52 since Wednesday evening.
There are still "serious questions" as to what Mr Trump's presidency will mean for commodity markets, ANZ economist Daniel Hynes said.
"With Trump threatening to renegotiate trade agreements, the free flow of commodities comes into question," Mr Hynes said.
"Such protectionist policies have roiled commodity markets" in the past he said, pointing to the impact on nickel prices following Indonesia's ban on raw material exports.
"In the energy space, Donald Trump wants to speed up America's energy independency by encouraging the development of domestic resources. This would ultimately be negative for oil and coal prices if successful."
Chinese authorities have moved further to blunt speculative activity in financial markets, with reports that the China Securities Regulatory Commission has banned futures brokers from margin financing. During the week Chinese commodity exchanges have raised transaction fees and margin requirements for trading futures in a range of commodities, including thermal coal, steel, rubber and tin.
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