Australian dollar still well supported by the iron ore rally

See the latest Australian dollar analysis here:

Macro Afternoon

Bloomberg are out today with a piece about how the short term risk of iron ore topping out and the ongoing trade squabble with China may upset the plans of economists forecasting the Australian dollar to hit the 80 cent level later this year.

To wit:

Traders have seized on every scrap of good news to push the Australian dollar higher in recent months, leaving it vulnerable to a pull-back as it approaches the key psychological level of 80 U.S. cents.

The currency surged almost 10% in 2020 as strategists ratcheted up forecasts for the Aussie on rising commodities prices, a sharper-than-expected economic rebound and local success containing Covid-19.

The Democrat victories in the U.S. Senate races this week, which have raised the odds of a Biden Administration unleashing more fiscal aid, may already be priced into the market, given with Aussie’s 1% year-to-date advance.

In the meantime, U.S. Treasuries offer opportunities not seen for months, with the 10-year yield rising above 1%. Some investors are also exiting short positions in the greenback after the Bloomberg Dollar Spot Index approached its February 2018 low.

If these hurdles prove too much for the currency and it reverses course, peaks on monthly charts near 74 U.S. cents stand as key support.

Does the weekly/monthly chart bear (sic) that out? I wouldn’t say key or terminal support exists at 74 cents, rather down at the 70 handle proper which was the August/September lows that was well supported, plus acted as key resistance throughout most of the last two years:

A key factor about the Australian dollar is its wide trading range, exemplified by the ATR or average true range, with a variance of about 200 pips or 2 cents at least each month. So in reality, support is between the last nominal high before the recent breakout at 74 cents and 70 cents – or about 2 months average true range. Nevertheless, if iron ore does continue on its merry way, the 80 cent level could be breached sooner rather than later.

Bitcoin has a much different structure, but like all tradeable “things” it does have technical analysis fundamentals. One of those is a series of wobbles (large trading ranges at a recent high) in the last 24 hours after recently breaching the $40,000 barrier. Note the ranging candles on the hourly chart since the overnight trade – having more than doubled in 22 days, the hourly chart is broadcasting a possible tipping point here as a point of control around the $38500 point level firms:

The digital tulip may still bloom a little further, but the volatility on the downside could be epic.

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Comments

  1. Pull out a chart of Chinese government stimulus > demand for ore > ore prices > AUD > House Prices

    whocouldofknown.jpeg

    Ore importers / steel makers have advanced warning of requirements and import duly – the drop off is always precipitous.

    This isn’t rocket science. Once you realize Chinese construction is fairly consistent but the big fluctuations ABOVE that come from stimulus and military build ups then the leaves become very easy to read.

    The dogged belief that China ONLY has apartment construction as an economy blind some commentators to what is obvious to the mail room boy.

    AUD will fall with ore which will be in free fall by March – same as last time, and time before, and time before….

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