The Australian dollar hit a one-year high on the euro on Wednesday as investors were attracted by Australia's status as a net energy exporter and distance from Europe's troubles.
The euro breached lows from last October to hit a trough at A$1.5274, having shed five cents in the past month. A break of the 2021 low at $1.5244 would see the euro down at depths last visited in mid-2018. The Aussie also firmed to $0.7280, having touched a six-week peak of $0.7289 overnight. It was now nearing the January top of $0.7314 and the 200-day moving average at $0.7328, and a break would be bullish for a run to $0.7370 and $0.7480.
The kiwi dollar edged up to $0.6780, and a breach of its recent top at $0.6808 could open the way to $0.6890. The war in Ukraine, and the resulting spike in energy prices, has darkened the outlook for European growth and seen markets drastically scale back expectations on when the European Central Bank may tighten policy.
Indeed, futures suggest some are even wagering on a renewed bout of stimulus through ECB asset buying. Markets have also removed almost 50 basis points of tightening by the U.S. Federal Reserve for this year, and trimmed expectations for the Bank of England and Bank of Canada.
Futures have pushed out the likely timing of a first hike by the Reserve Bank of Australia (RBA) to July, from June, and now see rates at 1.0% by year end rather than 1.25%. Yields on three-year bonds are also down 20 basis points on the week at 1.36%.
At its policy meeting on Tuesday the RBA left rates at 0.1% and reiterated it would be patient on policy even as it remained upbeat on the economic outlook.
Data out Wednesday showed the economy rebounded by a strong 3.4% in the December quarter as consumers spent with abandon, and signs are that continued this quarter. Su-Lin Ong, chief economist for Australia at RBC Capital Markets, noted the data suggested households had now built up excess savings of around A$280 billion, or 13% of GDP.
"A strong household balance sheet with scope for consumption to move back to its pre-COVID path, backlog of dwelling activity, and recovering confidence underpins our expectation for a strong 2022 and above trend growth," she added. "But the uncertainty from Ukraine/Russia provides added cover for the RBA's patient approach."
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