Glenn Stevens, Iron Ore and Oil Take Toll on Aussie
Australia’s top exporting commodities, iron ore, oil, gas has been taking toll on Aussie since 21st April, and especially so after Reserve Bank of Australia (RBA) introduced a rate cut of 25 basis points. Aussie, which has been fuelled by recovery in its key commodities, weaker Dollar and status-quo or hawkish rhetoric from RBA and rose about 1000 pips since early January to late April, has lost all of those key factors and they are now working in reverse.
- Iron ore, in Singapore exchange, rose around 90%, since early January to late April, it has declined about 30%, which clearly puts pressure on Aussie.
- RBA has clearly changed from status-quo to dovish with a rate cut and today’s speech by RBA governor Glenn Stevens’ suggests further openness to rate cuts. Economists expecting next cut to come in August.
- Dollar on the other hand has reversed course and Dollar index which is value of Dollar against a basket of six currencies, rose more than 3.5% in past three weeks.
With change in this outlook, Aussie has closed in our short term target –
- “Sell AUD/USD at 0.75 area with stop around 0.78 and target around 0.7”. It is now just 190 pips shy of the target.
We are expecting a bounce back from 0.7 area, but bigger drop against Dollar towards 0.65 area, after initial bounce can’t be ruled out.