The Australian Dollar has maintained its recent strength off the back of rising metals prices and in particular, Iron Ore.
“The surge in metals prices has validated the Aussie dollar above 79 cents with iron ore and the base metal complex sharply higher in Asia trade yesterday. That then fed into positivity through European trade, on the London Metals Exchange, and into US futures markets,” said Greg McKenna, chief market strategist at FX and CFD provider AxiTrader in Sydney.
“Even though the US dollar is weaker and the Aussie dollar didn’t gain overly much in the first 24 hours of trade this week what these moves did do was validate the Aussie above 79 cents.”
Greg noted several other reasons as to the steady performance of the Aussie Dollar, “Indeed given the Yen, Swiss franc, and Gold all caught a bid in this first part of the week it’s fair to say the Australian dollar’s performance has been solid – supported by this move in metals else it might be back below 79 cents and under a little pressure.”
A weak US Dollar and a strong Australia economy helping the Aussie Dollar
McKenna added, “For the moment what is clear is that the combination of a weak dollar, a strong Australian economy, and this latest surge in metals prices have combined to lift the Australian dollar.”
“That makes the outlook still very fluid because the battle is raging over the value of the US dollar. Is this just a hiatus before more weakness in the USD or the start of a trend toward strength. Either is important for the Aussie up here near 80 cents,” Greg noted.
Other reasons to support the Aussie Dollar back above 79 cents according to Greg, “Copper prices are at their highest since 2015, Zinc is at decade highs, and iron ore is heading back toward the downtrend line from the record highs back in 2010/11.”
Mckenna further adds, “Global growth is at its strongest in years. China remains committed to growing at 6.5% or better.”
Aussie forecasters edging up their Aussie Dollar levels
Greg discusses some of the forecasters recent change to their levels, “But it is worth noting that a number of forecasters of Aussie dollar value have been walking their levels up over recent months. The latest Reuters poll has Aussie Dollar forecasts of 78 cents in 1 month’s time and only 76 cents in 12 month’s time.”
But are they holding doubts at these levels? McKenna continues “That tells us much, but not all, of the positives, have been assimilated by forecasters. They still hold residual doubt about the Aussie’s ability to hold these levels.”
McKenna also notes the technical levels on the Aussie Dollar, “We know 78 cents has so far been good support while the mid 80 cent region has been resistance. Shorter-term the 4-hour chart shows traders are respecting a little uptrend from the lows near 78 cents. The Levels to watch today are 0.7920 and 0.7960/65. A topside break would suggest 0.8020 while a break of the trend line suggests 0.7885.”
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