The Aussie dollar has been outperforming over the past few days of Greek and Chinese drama hinting that it’s still hanging onto some of its former “safe harbour” glow. Let’s take another look at the MB five drivers model and see if we can figure out what’s happening. The five drivers are:
- interest rate differentials;
- global and Australian growth (more recently this has become more nuanced for the Aussie to be more about Chinese growth);
- investor sentiment and technicals; and
- the US dollar
In terms of interest rates, recent tier one Australian data – in capex, trade and retail – has been so bad that market pundits are second guessing it. There has also been some firming in the jobs market. As a result, recent pricing in the bond market has cut prospective easing completely and the spreads to US bonds have been widening for a month now:
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