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A strong pulse in global stock markets puts the AUD on top.
The Australian Dollar tops the G10 performance board on Thursday thanks to a decisively positive impulse moving through global stock markets.
U.S. futures are set for a 1.0%+ gain following impressive earning results from technology companies Meta and Microsoft. The earnings draw attention away from the Federal Reserve's refusal to rule-in a September interest rate cut which had weighed on performance ahead of the earnings reports.
"Microsoft and Meta delivered results that handily beat consensus, reinforcing the accelerating momentum behind AI, a theme rapidly emerging as a structural growth driver for the U.S. economy," says Kevin Ford, FX & Macro Strategist at Convera.
Microsoft shares rose +8% in after-hours markets and Meta was +11.5% higher after its earnings surged 36% to $18.3bn vs $15.3bn expected.
"This seemed to blow apart any doubts about its AI spending blowout - the company raised the lower end of its 2025 capital expenditures forecast to between $66bn and $72bn from its April outlook of $64bn to $72bn. It seems that spending massively on AI is still ok with investors as long as the earnings growth from the rest of business keeps pace broadly," says Neil Wilson, an analyst at Saxo Bank.
Rising stock markets are bolstering those currencies that are sensitive to sentiment, namely the Swedish Krona and Australian Dollar.
"The Australian dollar is what is known as a 'pro cyclical and risk-sensitive currency' because we are exposed to global trade through our large commodity export sector. This means that in times of positive global growth and sentiment, the Aussie dollar tends to appreciate and in times of lower global growth and uncertainty, it tends to decline," explains Diana Mousina, an economist at AMP in Sydney.
Asian markets responded to the positive U.S. impulse and recorded gains while Europe is following suit.
The strong earnings align with the signing of a new trade deal between the United States and South Korea that brings to an end a period of major macroeconomic concerns centred on Donald Trump's realignment of U.S. trade.
When combined with a still-healthy U.S. economy, the conditions for equity market outperformance remain intact.
With the AUD not likely to drop its long-standing relationship with sentiment, this bodes for more upside, particularly in the crosses.
What we mean by 'crosses' is non-USD Aussie exchange rates. This is an important distinction to make as the U.S. Dollar is also likely to benefit from a resurrection of the 'U.S. exceptionalism' trade, which is centred on solid economic performance, elevated interest rates and a strong AI-led stock market performance.
AUD/USD could find it difficult to appreciate if this theme grows, but AUD can potentially leverage its beta to risk against other currencies, such as the Pound, Euro, Yen and Franc.