AUD/USD: An 0.80s Flashback? - Westpac
Sean Callow, Research Analyst at Westpac, suggests that it is hard to escape a feeling of deja vu on AUD/USD in Q2.
“Charts of seasonality over the past 5 years show that the Aussie has closed the past 5 years down 6% on average but with its strongest point (+2.5%) printing in late April. We are on track for another strong April, with AUD/ USD up 2% so far this month and threatening further highs dating to May-June 2015. Recall that last year, AUD/USD rallied from under 0.76 in early April to highs above 0.81 mid-May.
Plenty has changed over the past year of course, including the Fed having raised interest rates and claimed that they will do so again. This should make recapturing the AUD/ USD0.80 handle more difficult in Q2 2016. But other factors are at least as supportive this year. US equities are not far short of the May 2015 record highs, consistent with improved global risk appetite. And the price action in commodity markets is at least as bullish as a year ago.
The benchmark MBI iron ore spot price has risen from lows under $40/tonne in January to above $64 this week, a new high since June 2015. But the commodity rally extends well beyond Australia’s number one export. Westpac’s index of commodity prices weighted by share of Australia’s exports is well above last June’s highs.
Why industrial commodities have been quite as strong as they have in recent weeks is open to debate. But there are plenty of signs of an acceleration in Chinese activity. Looking beyond the politically sensitive GDP data, we can see a sharp improvement in Chinese activity in March, the first full month after the lunar new year shutdowns. March exports and imports surprised on the firm side, as did industrial production, bouncing to 6.8% y/y, matching the fastest growth pace since Dec 2014.”