The Australian dollar is trading above the .7600 cents level on the back of a surge in oil price overnight.
“Given the context of a stronger US dollar, weaker Yen, Euro, Pound and Kiwi, that’s a solid performance for the Aussie dollar,” said Greg McKenna, chief market strategist at CFD and FX broker AxiTrader.
Rally in commodities good for the Aussie
According to McKenna, the Aussie’s strong performance is to be expected given that commodities outside of oil were also higher. At the same time, the stock market rally had an element of “relief” to it which signalled risk was a little bid.
“The combination of all these factors is a good thing for the Australian dollar,” McKenna said.
The rally in crude, copper and iron ore over the past 24 hours has enabled the Aussie dollar to climb back from weakness which knocked it back to the mid 0.7570 region overnight.
Naturally, the rally in oil and commodities more broadly is good for the Aussie dollar.
“It’s a long-standing relationship that currency traders have been using as an indicator of the outlook for the Australian dollar for many decades,” McKenna noted.
In no small part, it is the turn in oil and commodities that turned sentiment and lifted the Aussie dollar from its lows of early 2016.
But commodities are only one of many inputs into what drives investors and traders fair value estimates of the AUDUSD rate.
However, McKenna pointed out that the Australian dollar is still stuck, mid-range, between what is a broad 0.7450/0.7750 range with the inside parameters of 75/77 cents as traders wait for the next shoe to drop.
Russia joins OPEC in production cuts
But perhaps that catalyst for change, for a potential break higher, is coming as Russia joins OPEC in signalling that the period of low prices for oil has cut too deep and must be reversed.
The US dollar is stronger against other major currencies – the Yen, the Euro and the Pound, but weaker against the commodity bloc currencies save for the Kiwi dollar.
“The Canadian dollar is up 1% on the back of oil’s surge. Maybe it’s time for a little catch up because the CAD has been lagging,” said McKenna.
He added, “The Australian dollar gets the gong as the contrary to everything else price move because it has bucked US dollar strength and Kiwi weakness as it rises on commodity price moves and risk appetite.”
Mexican peso gains strength while Chinese yuan weakens
Two other notable moves in the past 24 hours. The Mexican Peso is at its strongest level in a month with USDMXN at 18.92.
On the other hand, the official Chinese Yuan fix of 6.70 was the highest in 6 years and validated the move in the offshore market.
“It tells us that the Chinese are happy to let USDCNY rise as the US dollar strengthens – especially if it is materially stronger against the basket if it held USDCNY firm,” McKenna said.
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