According to Reuters, despite the lingering shadow of future global trade wars, Australian bankers suddenly became more optimistic about the Australian dollar, as a series of unexpected good news about global economic growth supported the rise in prices of major commodities.
The Australian dollar has been the best performer among major currencies so far this year, rising nearly 4% to $0.7477.
This is a dramatic turnaround from the end of December, when the Australian dollar hit a seven-month low of $0.7160, as people bet that U.S. President-elect Trump policies will push up U.S. inflation, thereby driving The U.S. dollar is higher.
Since Trump did not mention the details of the stimulus policy at the recent press conference, this kind of transaction related to the US stimulus boom has cooled down.
At the same time, economic data in Asia and Europe have improved significantly, injecting new vitality into the prices of Australia's main resource export products.
Iron ore prices are currently near a two-year high, thermal coal prices are near a three-and-a-half-year high, while coking coal prices hit their highest level in five years last month.
"The current commodity market is better than many people think," Rob Rennie, global head of market strategy at Westpac Bank , also predicts that the Australian dollar may exceed US$0.75 this quarter.
"Rising volumes and prices will continue to boost nominal and real export activities throughout 2017. The foreign exchange market has underestimated this trend," he also said.
ANZ analysts said its measure of global manufacturing activity has hit its highest level since 2011, with all major sectors contributing to above-trend momentum. This is one of the reasons why Daniel Been, the bank's head of foreign exchange research, recommends buying the Australian dollar at the $0.7380 level, with a price target of $0.7800. Only a pullback to $0.7150 in the Australian dollar would threaten the bullish outlook.
However, analysts also admit that if Trump pursues trade protection policies against China, Australia's largest single export market, the situation may become worse.
If Trump and Beijing really come to blows, the Australian dollar is bound to suffer a sell-off.
