From Forexlive:
The RBA’s commentary on the A$ took a meaningful twist in today’s statement, when it dropped its reference to the currency ‘remaining above most estimates of its fundamental value.’ … is likely to continue to lift the AUD in the short term…
The fact that the RBA today dropped the reference to being ‘above most estimates of fundamental value’will not be lost on FX markets.
- Our short term fair value model has been fairly stable in recent weeks around 0.7650, a 6 year low.
- The 0.7500/ 0.7530 should now act as the lower end of the range for some time to come
- However, with iron ore and other commodity prices as weak as they are and little net rise in the market’s projected terminal rate on the RBA cash rate, it seems unlikely that the A$ can extend too much higher in the short term
- We suspect that the current 0.7500 to 0.7800 range trade could be in place for some time to come
Wrongly wrong, although I’m not exactly sure what “some time to come” means. This is the same argument we heard from Bill Evans for stabilisation at 85 cents last year and it will be wrong for exactly the same reason: iron ore.
The Q3/Q4 nexus is building as a shocker for iron ore with the current global oversupply exacerbated by declines in Chinese steel production, another big lump of expansion from RIO in late Q2 and then another again from Roy Hill in Q3.
$30 iron ore by year end will trigger further interest rate and Australian dollar falls.
