In a decidedly risk-on session the Aussie dollar has resumed an upward trajectory against its US namesake overnight rising to just 15 pips away from parity. After much speculation of an imminent interest rate hike, no news is good news as far as China is concerned and this aided a solid performance from US equities thus putting some steam behind the local unit which surged to highs of 99.85 US cents.
In an effort to combat what some see as an economy on the brink of overheating, Friday saw the Peoples Bank of China raise bank capital reserve requirements for the sixth time this year. The central bank announced on Friday a 50 bps hike to take the reserve requirement ratio to 18.5 percent for most banks. Inflationary fears were further highlighted over the weekend with the Chinese economy reporting a consumer price rise at an annual pace of 5.1 percent in November from a previous 4.4 percent - surpassing estimates of a rise of 4.7 percent.
Nevertheless, with risk appetite back on the table it came at the expense of the greenback. This theme of US dollar weakness also played out against its major counterparts with the US dollar index which measures the value of the greenback against six major currencies losing near 1 percent on the day. There is no greater beneficiary to the latest burst of energy than the Euro which is currently trading just shy of US$ 1.34 after earlier rising to highs of 1.3435.
With US dollar parity now in sight the local unit has two distinct resistance points to break with levels of 99.65 and 99.80/5 previously providing resistance for price action. The day ahead brings economic feedback on housing starts and the National Australian Bank business confidence/conditions survey for November; however there's little doubt tonight's FOMC rate decision from the US will be the prime risk event for the local unit as market participants attempt to find any clues in relation to further quantitative easing from the Fed. At the time of writing the Aussie dollar is buying 99.5 US cents.