AUSTRALIA DOLLAR FUNDAMENTAL PROGNOST: BEARISH
- AUD / USD confirmed as USD softened with higher drifting goods
- Differences in performance between Australia and the US continue to play a role for the Aussie
- Delta cases present further challenges for risk assets
The Australian dollar found some support this week in strengthening risk assets US dollar was withdrawn from the last ascents. Domestic data were mixed with private capital expectations (4.4% in Q2), while retail sales were disappointing (-2.7% in July). Iron ore prices helped make the ship sustainable for AUD, as its free fall was halted when China reopened its ports.
Iron ore, by far Australia’s largest export, has a clear link to AUD – as shown in the graph below. Over the last two weeks, we have seen the impact of the closure and reopening of Chinese ports. Any change in circumstances and policy is likely to drive the price of iron ore out of the country. Therefore, the market is likely to remain alert to further developments.
Commodity prices are mostly in US dollars and it is not surprising that commodity prices affect the movement of the AUD. With that in mind, focusing on Greenback’s more moves is likely to play into the goods and the Aussie. Dropping out The Fed saw an Immediate weakening of the US dollar. For now, this has made an offer for consumer goods.
The 10-year yield differential between Australia and the United States has consistently played a critical role towards AUD / USD. As a result of Jackson Hole, more bonds were seen and yields fell together. On one side of the comparison, a break in performance may affect the direction of the AUD.
Looking ahead, market relations are likely to determine the direction of the AUD, provided that domestic problems do not come as a surprise. The ongoing pandemic continues to disrupt the economy and risk assets are responding to the news accordingly.
Australian trade data will be released this week, but the market is likely to focus more on monthly building permits and second-quarter GDP figures. Jackson Hole follow-up RBA meeting on September 7thth especially for product markets.
AUD / USD against iron ore and Australia / US 10-year yields
– Written by Daniel McCarthy, Strategist at DailyFX.com
Use the or comments section below to contact Daniel @DanMcCathyFX Twitter