Five Year High Iron Ore Price, Jobs Data Keep Aussie Bullish

Five Year High Iron Ore Price, Jobs Data Keep Aussie Bullish
July 22, 2019

 

The Aussie has gained nearly 0.5% against the greenback in the past week, mainly due to the release of strong jobs data. The AUD/USD pair’s rally was also fueled by the call for a quick Fed rate cut by members of the Federal Open Market Committee (FOMC). On Friday, the AUD/USD pair rallied from a low of 0.9195 to a high of 0.9240, before closing flat at 0.9198.

The Aussie started strengthening last week after jobs data released by the Australian Bureau of Statistics indicated that the unemployment rate stood unchanged at 5.2% in June, in line with analysts’ estimates. Notably, the economy added 21,000 jobs.

The AUD/USD pair rallied further when the New York Fed President John Williams called for a quick rate hike to avoid the need to manage low inflation and interest rates. The Forex market perceived the dovish statement as a signal for a 50 basis point rate cut when it meets at the end of July.

John Williams believes that there are considerable advantages in acting quickly when there is a slowdown. Williams said, “When you only have so much stimulus at your disposal, it pays to act quickly to lower rates at the first sign of economic distress.”

Previously, Fed Vice Chair Richard Clarida had echoed a similar sentiment last Thursday. Clarida said, “You don’t need to wait until things get so bad to have a dramatic series of rate cuts.”

The currency pair’s rally was also supported by an almost five-year high iron ore price of $120 per ton. Supply interruptions in Brazil and Australia and record-high steel production in China has boosted the price of iron ore by nearly 67% this year. Notably, Australia’s federal budget for fiscal 2020 had forecast only $88 per ton for iron ore.

In its latest report on commodities, Deutsche Bank has stated that iron ore price will continue to stay above $100 per ton until the 1H2020 and then at $80 per ton until 2021.

In a note to clients, Nick Snowdon, metals analyst at Deutsche Bank (London), explained why the price of iron ore would remain above $100 and stable for the rest of the year. “One of the key takeaways from our [recent] China trip regarded clear evidence of a positive trajectory for infrastructure investment activity in the second half of the year, and only a modest deceleration in new [housing] starts during the same timeframe. This points to a relatively healthy demand setting for iron ore in the second half of the year.”

Expectations for a 50 basis point rate cut by the US Federal Reserve and strong iron ore prices are expected to keep the AUD/USD pair bullish in the short-term.

The AUD/USD price chart indicates that the currency pair is trading above the support level of 0.9190. The next major resistance is expected at 0.9285. The oscillator of moving average also has a positive reading. As a result, we can expect the currency pair to move up in the short term.

AUD - techncial analysis - 22nd July 2019

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.

 

Ian Maguire

Ian Maguire

Ian is our resident contributor to the latest going ons in the cryptomarket, keeping up to date with the latest icos and coins


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