Rising Commodity Prices to Drive AUD Higher

Australian Dollar, Iron Ore, Commodities, Covid-19, Consumer Confidence – Talking Points:

  • Australia’s success in suppressing the novel coronavirus and soaring commodity prices may underpin the cyclically-sensitive AUD in the coming months.
  • Consumer confidence and retail sales figures will be keenly eyed to gauge the speed of the nation’s nascent economic recovery.

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As mentioned in previous reports, the cyclically-sensitive Australian Dollar seems poised to continue outperforming its major counterparts in the coming months, as the island nation keeps the novel coronavirus at bay and continues to benefit from strong demand for its most valuable export, iron ore. Although a fresh outbreak of Covid-19 in New South Wales and Victoria forced interstate borders to shut down at the tail end of 2020, the number of infections has remained in the low single digits.

Indeed, the implementation of robust contact tracing schemes in the nations two most-populous states has permitted venues to remain open, with mandatory mask-wearing and reduced capacities in indoor settings the only notable adjustments in social distancing measures. This will likely allow Australia to continue its economic recovery relatively unabated.

Australian Dollar Outlook: Rising Commodity Prices to Drive AUD Higher

Source – Bloomberg

Moreover, surging iron ore prices may also underpin the trade-sensitive currency, as the metallic rock continues its historic surge from the February 2020 lows, climbing as much as 116% in the last 12 months.

With Chinese demand notably surging in recent weeks, and a substantial fiscal safety-net in place, this relentless push higher looks set to endure. The Chinese government has yet to unleash trillions of yuan in stimulus, after selling a record amount of bonds last year, which suggests that a more extensive recovery could be in the offing. Therefore, positive local health developments, in tandem with the robust economic recovery seen in China, may put a premium on the Australian Dollar in medium term.

Australian Dollar Outlook: Rising Commodity Prices to Drive AUD Higher

AUD/USD daily chart created using Tradingview

Retail Sales, Consumer Confidence On Tap

Looking ahead, consumer confidence figures for January will be keenly eyed by regional investors, alongside final retail sales figures for November, to gauge the speed of the local economic recovery. Better-than-expected economic data probably underpinning the local currency against its major counterparts.

Australian Dollar Outlook: Rising Commodity Prices to Drive AUD Higher

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— Written by Daniel Moss, Analyst for DailyFX

Follow me on Twitter @DanielGMoss

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