Australian dollar to face headwinds

13 March, 2017

The Australian is trending higher today, following on from Friday’s gains and brushing off further weakness in commodity prices. At 6.28pm (AEDT) the Aussie dollar was trading at US75.77c up from US75.40c in at close of trade on Friday. Iron ore, Australia’s biggest commodity has surged more than 80 percent since reaching a low of around $40 dollars last year, but some a predicting that the party may soon be over and that China will be to blame.

China has been accumulating big stockpiles of Iron ore in anticipation of a more building projects but some predict this may fail to eventuate, which will hit the commodity hard

“Without a lift in demand, once the decision is made not to continue to build inventories, then that excess supply will suppress prices and the fall in prices will spur an unwinding of inventories, which will lead to a deeper correction to prices." said Justin Smirk, a senior economist at Westpac,

"We stand by our forecast for a significant correction in ore prices, we just can't be sure of the timing." he added.

An expected rate hike from the US Federal Reserve this week after last Friday’s solid jobs data may also put pressure on the Australian dollar against its US counterpart.

The latest non-farm payrolls figure from the US jumped 235,000 from last month, which was well above consensus for a figure of 195,000, while the unemployment rate fell to 4.7 percent, cementing the Fed’s case for a tightening of monetary policy.

As the difference in interest rates between Australia and the US narrows further the appeal of the carry trade will begin to diminish which has underpinned the Aussie dollar for some time.


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