The Aussie recorded a near three-year high of 0.7885 (a level last seen on March 14, 2018) against the greenback yesterday following an increase in the Australian government yields and a sharp rise in commodity prices. The recent manufacturing and service PMI data reflecting robust economic activity also enabled the Aussie to gain ground against the US dollar. In the last 24 hours, the AUD/USD pair rallied from a low of 0.7856 to a high of 0.7907.
The Australian government’s long-term (30-yr maturity) bond yield touched 2.563% yesterday, an increase from 2.139% a month before and 1.788% six months earlier. Rising bond yield attracts overseas investors and capital inflow strengthens the Aussie.
With respect to the economic data, data published by the IHS Markit PMI (purchasing managers’ index) indicates the strong performance of both manufacturing and services sectors. While manufacturing PMI recorded a 2-month low of 56.60, services PMI hit a four-month low of 54.10. Nevertheless, a reading above 50 indicates expansion. Output has increased for six consecutive months. Fresh orders increased, but at a slower pace.
Notably, the country’s unemployment rate declined to 6.4% in January, from 6.5% in December as job creation hit the steepest level since October 2018. As optimism over economic rebound hit the highest level in two-and-a-half-years, companies increased the staff count.
In addition to strong economic data, the Aussie is also supported by rising commodity prices. Australia, which generated A$116 billion last year from the export of iron ore, continues to reap gains from the 10-year high price of $175/ton for the benchmark 62% Fe grade.
The reopening of Chinese markets following the New Year holiday is expected to keep the demand for iron ore steady in the weeks ahead. In fact, Citi analysts are expecting the price of iron ore to reach up to $190/ton, a level last seen in February 2011.
Australia also expects to realize A$12 billion from exports of copper. In 2020, the country shipped A$10.40 billion worth of copper, up from A$10.20 billion in the previous year. The copper price rose over $9,000 per ton for the first-time in nine-years, mainly due to supply shortage. Specifically, three-month copper traded at $9,269.50 on the LME (London Metal Exchange).
The arrival of the COVID-19 vaccine has also improved optimism about a strong economic rebound in the months ahead. The rise in government bond yields, strong commodity market, increasing employment, and the arrival of the COVID-19 vaccine are expected to keep the AUD/USD pair slightly bullish in the short-term.
The historical price chart indicates that the AUD/USD pair has broken the long-term resistance at 0.7785. The next major resistance is anticipated only near 0.8120. The stochastics indicator is in the bullish zone, while the currency pair is trading above its 50-day moving average. Therefore, we are anticipating the currency pair to remain in an uptrend in the days ahead.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
