The Australian dollar has surged higher overnight, easily clearing the US77¢ mark to its highest since the US election, and positive January jobs data could solidify its advance, according to NAB economists.
The currency rallied more than 1 per cent from an overnight low of US76.37¢ to jump over the US 77 cent mark. It was further boosted by Thursday's employment figures, reaching a high of 77.32 US cents just after 11:30 AEDT.
![The Aussie dollar has been one of the strongest performers this year,](/web/20170216012042im_/http://www.theage.com.au/content/dam/images/g/q/3/c/0/w/image.related.articleLeadwide.620x349.gudzlv.png/1487207966796.jpg)
The Aussie, which has risen 6.8 per cent so far in 2017, managed to press through a key technical trading level, said NAB economist Rodrigo Catril, adding it "now has more freedom" to move still higher.
In Washington, Federal Reserve chair Janet Yellen testified before US lawmakers for a second day, reiterating her expectation that the central bank will be looking at lifting interest rates in the months ahead as the world's largest economy expands bolstering both the labour market and inflation.
Coincidentally, the US released January retail sales and price data overnight both of which adding strength to the Fed's case to raise rates. Retail sales rose a better than expected 0.4 per cent last month and were revised higher for December. More importantly, the consumer price index was 0.6 per cent higher in January, and in the 12 months through last month was up 2.5 per cent—the fastest year v year rise in almost four years.
Locally the focus is on Australia's economy.
The RBA has been overwhelming positive this month in particular; governor Philip Lowe embraced the power of global economic strength and the US path to higher rates, leading some economists to speculate that the RBA could start to signal a rate hike as early as August.
Meantime, today's January jobs data are pending, and NAB economist Tapas Strickland said the report "could provide the catalyst for a firmer footing at 77 cents for the Aussie.
"The market consensus is for employment growth of +10k and an unchanged unemployment rate at 5.8 per cent," Strickland wrote in a morning note.
"NAB sees possible upside risks to employment this month following the recent pick-up in a number of indicators and is expecting employment growth of +20k. That growth rate is consistent with the NAB survey with the employment index out of the survey suggestive of employment growth averaging around 21k a month for the next three months or so.
"It's also worth noting here that employment has generally undershot leading indicators for the past six months and some catch up could be expected over the next few months – though of course picking the right month has proven to be bit of a lottery in the past," Strickland also said.
As for the greenback, it popped higher initially on the latest US data and Yellen's optimism, but the US dollar wasn't able to hold, "partly due to an unexpected decline in industrial production", said BK Asset Management's Kathy Lien.
"While (Yellen) was slightly more cautious (in her second day of Congressional testimony), the overall tone of her comments was positive and more importantly, after all of today's developments, rate hike expectations increased with Fed Fund futures pricing in a 46 per cent chance of a hike in March, up from 34 per cent yesterday, said Lien. Ten year Treasury yields also resumed their rise towards the end of the New York session, a sign that the US dollar remains a buy on dips.