The Australian Dollar has seen a strong bull rally - up 12% from its March lows. Now bulls are edging for the currency to push higher.
A possible push of the Australian dollar to 75c against the U.S dollar is a level not seen since May 2018. During that period where it first dipped below 75c, there were many retests in the following months before we finally saw a sold push below the 75c mark. This historical dynamic may require bulls to have strong momentum if they want to pass that 75c mark.
The Australian Dollar is noted for being a commodity currency – that is, the value of their currency against other currencies is mainly correlated from the price of commodities they export. You can see this correlation with the price of Iron and Copper.
That 12% push from its March low has been due to its largest export partner, China, seeing their demand for Australian resources sour amongst the Coronavirus pandemic and their souring relationship regarding barley and wine exports.
Australia’s Minister for Resources, Keith Pitt told the Financial Times in a recent interview that the mining and energy sectors were underpinning the domestic economy, which has been battered by a second wave of the Coronavirus that has forced many businesses in Melbourne to shut their doors for another couple of weeks. He also states that “62% of China’s Iron ore imports came from Australia in 2019-2020,” reiterating that commodity correlation.
However, more institutions are bullish on the Australian Dollar. Notably. Commonwealth Bank of Australia stated that “the recent rally in some commodity prices seem unstoppable,” hinting at the idea that commodity prices are an essential driver of the Australian Dollar.
It also helps that over the past couple of weeks; there has been a trend of de-dollarisation amongst traders and investors. This may be due to a mix of factors, including a 34% rally in Gold, unprecedented fiscal stimulus and quantitative easing, and a strong rally in U.S equities forcing investors and traders out of the U.S dollar.
If we continue to see strong demand for commodities such as Copper and Iron, we may see both the Australian Dollar and the prices for those rally in tandem together.
Speaking of Copper – a senior analyst here at BlackBull Markets, Anish Lal did an excellent technical overview video on whether copper will hit 80c – You can watch it here.