After the Reserve Bank of Australia Governor pointed to a shift toward domestic consumption-oriented economic growth, Australian dollar currency exchange traded funds strengthened Wednesday, with the Aussie rising to a four-month high.
The CurrencyShares Australian Dollar Trust (NYSEArca: FXA) rose 0.7% Wednesday and is up 3.0% year-to-date.
RBA Governor Glenn Stevens sees signs that the economy could strengthen later this year on a shift to domestic consumption from mining-led demand growth, reports Michael Heath for Bloomberg.
“This outlook is, obviously, a balance between the large negative force of declining mining investment and, working the other way, the likely pick up in some other areas of demand helped by very low interest rates,” Stevens said in a speech. “The lower exchange rate since last April and the improved economic conditions overseas also help.”
The Australian dollar’s movement depends on investors’ view of the country’s fundamentals, according to Stevens.
“Stevens’s overnight comments have caused the market to rethink where to draw the line in the sand for the Aussie,” Shahab Jalinoos, a senior currency strategist at UBS AG in Stamford, Connecticut, said in a separate Bloomberg article. “Even if you think the Australian economy is not fantastic, the comments challenge how unhappy the RBA would be about a strong Aussie. They wouldn’t talk it down as aggressively as before.”
The Australian dollar appreciated to $0.9245, the strongest since Nov. 22. The Aussie has gained 3.4% so far this month against the U.S. dollar, the best performer among the greenback’s 16 most heavily traded currencies.
FXA tracks the price movements of the Aussie through a deposit account denominated in Australian dollars. Additionally, the ETF shows a 12-month yield of 1.99% as the deposit account issues some interest.