The Aussie has been one of the top-performing currencies this week, and it has extended its lead against the greenback for the third consecutive day.
AUD/USD Pair Rallies Higher:
The mixed Australian jobs and Chinese inflation figures didn’t affect the Aussie’s performance today, and it could rally higher over the coming hours.
Despite the mixed Australian jobs and Chinese inflation figures, the greenback didn’t do itself any favors with the FOMC minutes. The FOMC minutes published yesterday show that the FED could make changes to its policies before the end of the year. The staled negotiation with the EU regarding steel tariffs also puts a dent in the USD’s performance.
The AUD/USD pair could surge higher towards the 0.7478 level over the coming trading sessions if the Aussie maintains its current momentum. The buying interest on the Aussie and the USD’s performance could dictate how the pair perform over the next few days.
The commodity currencies continue to top the forex leader boards daily. Commodities are strong with the CRB index moving to fresh cycle highs on the day in what has been a monumental rally since April 2020. AUD, in particular, is enjoying a comeback in iron ore prices with a fresh corrective high made at the start of the week.
Evergrande remains a dark cloud for AUD:
However, the Evergrande crisis is a dark cloud hanging over the Australian economy and its reliance on its biggest export, iron ore. Prices sat just over $US120 ($164) per tonne of 62 percent at the end of last week, well below the prices reached in mid-July this year, when they topped $US200 per tonne. Considering the Chinese property shake-out, the fastest and largest iron ore crash in history would be expected to resume its southerly trajectory. UBS estimates there are 10 developers with potentially risky positions with combined contract sales of 1.86tn yuan – or 2.7 times Evergrande’s size. In other words, Evergrande is only the tip of the iceberg.
Chinese construction is likely to fall over the next year and that would be expected to equate to hundreds of millions of tonnes of less steel that will be needed. This would equate to hundreds of million tonnes of iron ore equivalent also. This puts iron ore on track to fall below $100 a tonne and perhaps to even match its 2015 price crash to somewhere below $50 shortly and weigh heavily on AUD.
USD profit-taking in play:
Meanwhile, the US dollar edged down against major peers on Thursday, touching a 10-day low as rising risk appetite and profit-taking ensued at the same time. Producer price growth slowed in September to the lowest level this year as airline passenger service costs plunged. The seasonally adjusted producer price index rose 0.5%, compared with a 0.7% gain in August, the Bureau of Labor Statistics said on Thursday. The latest print was the lowest since December and came in line with the consensus on Econoday.
Nevertheless, there are expectations that the US Federal Reserve is going to tighten monetary policy more quickly than previously expected amid an improving economy and surging inflation that had fuelled a rise in the greenback since early September. The minutes of the Fed’s September meeting were more hawkish than expected and have confirmed the tapering of stimulus is likely to start as soon as November.
AUD/USD Long (Buy)
Enter at: 0.74524