The Australian dollar is back just under .80 cents at the open of trade this week despite falls in iron ore prices.
“The Aussie dollar is holding on to a solid support,” said Greg McKenna, chief market strategist at CFD and FX Provider AxiTrader.
“It remains impressively impervious to iron ore falls into bear market as speculative traders up their positions,”
McKenna noted that on balance, the Aussie has done quite well all things considered given that iron ore is now down 20% from its recent peak just a little over a month ago.
He added that though it has shown a directional correlation with the fall in iron ore and copper prices, the magnitude of the fall has been nowhere near as big compared to iron ore.
The Aussie is just 2.15% off the 0.8124 high on September 9.
Given the Aussie’s strong performance, McKenna said the question of what’s next is an interesting one though.
“It’s tied to the continuation, or not, of the fall in iron ore, steel, and copper prices,”
“But it is also tied to how the German election over the weekend and the collapse of the vote for the two main parties impacts sentiment toward the Euro.
“That, in turn, will impact sentiment for the US dollar which then flows through to the Aussie dollar,” he said.
Based on the election results in Germany over the weekend, Chancellor Merkel will retain her job.
But she must look for new coalition partners now the SPD is going into opposition.
“She’ll cobble together this coalition but what these other parties extract from her in exchange for their support, or how the rise of the far-right Alternative for Germany (AfD) party means for German – and European – politics is uncertain,”
“That may weigh on Euro and thus give the US dollar some support,” McKenna said.
“That would hurt the Aussie. It’s conjecture I know, so we’ll see.”
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