Australian Dollar Strengthens on Iron Ore Rally

Australian Dollar Strengthens on Iron Ore Rally
August 9, 2018


The Australian dollar declined against the yen earlier this week on concerns over trade war between the US and China. As China is the largest trading partner of Australia, the Aussie turned weak. On the contrary, uncertainty bolstered the yen. However, as argued below, economic data and commodity price swings favour a bullish trend reversal in the AUDJPY pair. At the time of writing this article, the AUDJPY pair was trading at 82.40.

After staying near $60 per ton for more than a month, the price of iron ore jumped to $70 in the past few days due a crackdown on pollution by the Chinese government. As the government continues to clampdown on excess capacity, the price of steel is increasing. This has encouraged steel mills to ramp up production leading to an increase in the demand for iron ore, which is the top export revenue earner for Australia.

Likewise, the price of coking coal, the second largest export product of Australia and raw material for steel industry, has increased to $190 per ton CFR China ports.

In Japan, the cabinet office reported a decline in the Economy Watchers Index, a measure of people’s expectation of the Japanese economy. The index declined to 46.6 in July from 48.1 in June. Economists had expected the index to fall to 47.8. Notably, this is the lowest score since September 2016, when it posted 46.3.  A reading above 50 indicates optimism, while a score below 50 reflects pessimism.

Earlier today, the Cabinet Office of Japan reported an 8.8% decline in the core machinery orders in June, versus analysts’ expectation of a 1.2% decline. In May, the core machinery orders decreased by 3.7%. The rise in commodity prices favours strengthening of the Aussie against the yen, which is under pressure due to poor economic data.

The historical price chart indicates that the AUDJPY pair is trading near the major support level of 82.10. Furthermore, the momentum indicator is ascending. Therefore, an uptrend is expected to begin soon.

AUDJPY - Technical Analysis - 9th August 2018

To gain from the probable uptrend, we may establish two trades, one each in the binary and Forex market.

Using our Forex trading account, we are planning to open a long position in the AUDJPY pair near 82.40, with a stop loss order below 81.60. We are looking at 83.60 levels to book profit in the trade.

Simultaneously, we may also purchase a call option when the AUDJPY pair trades near 82.40. Before blocking our funds for the purchase of the contract, we would make sure that a contract with expiry date between August 16 and August 18th is available.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.



Sammy is our forex expert, with over 20 years experience in the financial sector, she will be keeping you up to date with the ups and downs of currencies around the world

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