Buoyed by surging equity markets and continued strength in the iron ore and crude oil price, the Australian dollar has rallied hard in overnight trade, rising to as high as .7246 before easing into the New York close.
As at 7am AEDT the AUD/USD buys .7228, representing an increase of over 1% for the session. It is currently on track to close at the highest level seen so far in 2016.
Despite the recent strength in the Aussie, Elias Haddad, currency strategist at the CBA, believes that the rebound in the iron ore price, and as a consequence the Aussie, is unlikely to last.
“The move in iron ore prices recently is not sustainable in our view which will curtail AUD strength,” said Haddad in his morning note. “Higher iron ore prices looks to be driven by the weather related supply-side disruptions in Port Headland recently, as well as the impact from the burst dam in Brazil in late 2015, and seasonal re-stocking by Chinese steel mills following the Lunar new year holiday.”
“Notably, the iron ore curve remains in backwardation, with market participants anticipating prices to reverse as the rising supply hits the market at a time underlying demand is weak.”
Alongside the likely reversal in the iron ore price, Haddad suggests that upcoming Australian data and weak global growth will also curtail the Aussie’s advance.
“Looking ahead, AUD/USD upside will be limited because of unimpressive global economic activity. Locally, AUD will also be weighed down by weak outcomes for Q4 2015 wages (Wed) and CAPEX survey (Thu).”
With little on the economic data front today to speak of – both domestically and regionally – movements in Chinese markets are likely to be influential on the Aussie today.
The rally in Chinese stocks yesterday kicked off the gains seen in European and US trade overnight, ensuring many will yet again be watching when stock market futures open at 12.15pm AEDT.
Given the renewed focus on the iron ore price, the movements on the Dalian Commodities Exchange will also be influential when it comes back online from 12pm AEDT. Overnight the most actively traded May 2016 contract surged by a further 3.73%, pointing to the likelihood of further gains in the spot price arriving later on this evening.
Here’s the current Aussie dollar scoreboard.
- AUD/USD 0.7228 , 0.008 , 1.12%
- AUD/JPY 81.52 , 1.08 , 1.34%
- AUD/CNH 4.7179 , 0.0523 , 1.12%
- AUD/EUR 0.6554 , 0.0133 , 2.07%
- AUD/GBP 0.5107 , 0.0146 , 2.94%
- AUD/NZD 1.0772 , 0.0023 , 0.21%