All about Aussie dollar strength today, iron ore prices slightly higher again, ASX futures 11 points higher

It's an unusually sad and disappointing morning for many Australians. The staff members at Rivkin certainly have heavy hearts after the news of eight executions emerged from Indonesia around six hours ago, which included two Australians. There will be no shortage of opinions about this in today's press and social media; Rivkin simply sends its love and support to the families who have suffered so horribly throughout this mess.

The Australian dollar was a big mover overnight, significantly outpacing the weakness of the US dollar, which points to more Australian-centric themes that are driving its strength. US consumer confidence printed a score of 95.2 at midnight last night, signalling contracting sentiment at the same time as the market was expecting an improvement (to 102.5) of the previous month's number, which was 101.4. There was strong selling resistance in the AUDUSD currency pair at around US$0.7880; and once this level was broken, traders steadily bought the Aussie dollar up to three-month highs above US$0.80. As you can see, this exacerbated recent positive moves in the AUDUSD and while many might play up the effect that short-term positive moves in the iron ore market might have on investor sentiment, interbank cash rate futures simply eased back from projecting a 57% chance of a cut to a 50% chance of a cut yesterday. I suspect that money might be flowing back into the long AUDUSD carry trade, as US-focused investors project sustained low interest rates in the US versus 2%+ rates in Australia. In today's second chart, you can see that the performance of the AUDUSD (black line) and NZDUSD (orange line) wasn't too dissimilar. New Zealand will announce its rate decision at 7am tomorrow (unchanged at 3.50% expected), and it could receive similar treatment as traders target high outright interest rates.

The first 50%+ implied probability score with regard to whether the US Federal Reserve will hike rates has now been pushed out to December this year. A lot of money exited the Aussie dollar trade as bets of a US rate hike were placed last year, there's no doubt a lot of money will flow back in if FX traders bring the carry trade theme back to the fore.

Indeed iron ore prices have been recovering. And yes, they were higher again overnight. Fortescue Metals Group (FMG) yesterday touched highs of $2.63 before traders took profits, likely predicting that the short-term price of iron ore had run hard enough. The shares closed at $2.45 and will likely regain some of yesterday's losses this morning, but a similar caution about the swift rise of iron ore prices will remain latent in this market and the best FMG holders should hope for at present is for some price consolidation to firm up the base that FMG shares are forming after having risen fairly spectacularly in the last seven days.

As pressure to hike rates in the US subsided, gold traders responded bullishly on the basis that the continuation of easy money and a weakening US dollar will be supportive of US dollar spot gold prices. Today's last chart shows US dollar spot gold (XAUUSD) moving higher and breaking through recent selling resistance. If last night's US dollar weakness extends and poor data in the US continues to emerge, one would imagine that gold will continue to rise accordingly. US GDP figures are due out tonight at 10:30pm and will be followed by a statement from the US Federal Reserve on its policy decision, due at 4am tomorrow - both Sydney time. Foreign exchange markets will likely remain volatile over the next 24 hours due to the amount of data emerging from the US.


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: German CPI out at 10pm, US GDP out at 10:30pm, US FOMC rate decision at 4am, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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