A quick look at how the Australian Dollar (AUD) has performed against the 8-largest weightings in the RBA’s trade-weighted index (TWI) so far in 2014. YTD it’s lower against the USD along with those pairs that are pegged to the greenback, the CNY and SGD. Demonstrating the impact of monetary policy, the AUD has risen the most against the EUR (+8.1%) and JPY (+7.6%).
While YTD the RBA’s TWI is only fractionally higher (+0.4%), it is interesting to see the sudden move higher in the AUD so far in November. With the BoJ, ECB and now BoE all turning uber-dove, it is clear that capital is flowing to those currencies that still offer relatively-large yield differentials, Australia and New Zealand. The fact the NZD has outperformed the AUD of late demonstrates this point.
With other major central banks all leaning further towards a dovish stance only a pick up in Fed rate hike expectations, or an unexpected negative economic event, looks likely to derail the search for yield should the status quo remain in place.