The Australian dollar has surged past US68¢ following a robust jobs report for December, which has heightened expectations of an interest rate increase by the Reserve Bank of Australia (RBA) next month. The local currency was last up by 0.7 per cent, trading at US68.08¢ – its highest level against the US dollar since October 7, 2024.
IG market analyst Tony Sycamore noted that the exceptionally strong December employment data had significantly increased market-implied probabilities of an RBA rate hike as early as February, estimating the chance at approximately 60 per cent, with 15 basis points now factored in. According to IG market analyst, the dollar’s upward movement is further bolstered by improved risk sentiment related to the Greenland framework announcement, as well as resilient Chinese economic indicators.
Additional momentum comes from the increase in precious metals and commodity prices, driving demand for Australian resource stocks. Moreover, reports suggest that Australian Retirement Trust (ART), Australia’s second-largest superannuation fund, is considering increasing its FX hedging ratios. Superannuation funds increasing hedging of foreign exchange would provide tailwinds for the Australian dollar.
Sycamore explained that a shift towards higher hedge ratios by super funds, which have historically maintained low hedging levels, would provide additional tailwinds for the Australian dollar against its US counterpart. The market will be closely watching the RBA’s next moves in response to these economic signals.
