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Australian Dollar Vs. Japanese Yen And U.S. Dollar – The Relative Strengths

January 7, 2013 in Forex Analysis

It is not an exaggeration that to predict movement of Australian Dollar we need to keep an ear on the door of Chinese room, and not the Australian, to catch any whispers coming out.

Some simple facts about Australian economy:

Because of the facts mentioned above, to a great extent, the strength of Australian Dollar depends on the market sentiments about Chinese economy.

Some recent bullish expectations about increase in Chinese urban investments and the sudden weakness of Japanese Yen against all major currencies made the Australian Dollar to appreciate against the Japanese Yen greatly. The bullish sentiments also came because of the increase in the iron ore prices which started moving up after September 2012 . The price of iron was continuously falling and during September 2011 it had reached below the December 2009 level.

Recent Increase in Iron Ore Prices

Iron ore prices - Growth

Iron Ore Prices – Historical View

Historical Iron ore prices during past 5 years

Since 2009 AUD/JPY had three peaks. The pair had found a strong resistance after reaching those highs and on each occasion it fell very strongly from there. The first high was 88.05 during late April 2012. The fall from there had taken the currency pair to 71.89. The next peak was 90.03 during the early April 2011 i.e. close to one year after the previous peak level and the fall from there had taken the currency pair to 72.05, during early October 2011. Subsequent rise saw a high of 88.63 during mid March. The interesting point to note is that this time again it happened close to one year after the previous high.

AUD/JPY Price Action During Past 2 Years

All previous big falls of AUD/JPY came before the pair could test the psychological resistance of 90.00 except one case when it was a simple touch and go and the pair had touched  90.03 but could not sustain. Also, as mentioned above, the gap between each of those highs was close to one year. This time the pair broke all those records and the currency pair shot above 90.00 very strongly and went up to 92.84. This certainly indicates the strength of bullish sentiments.

AUD/JPY Weekly Chart

What To Expect from AUD/JPY:

As mentioned above, China has been in the driving seat behind the strength of the Australian dollar because of the expectations that there will be an increase in the urban investments. The expectations of some strong economic reforms in China to boost the industrial growth added to the bullish sentiments for the Australian currency. The recent general weakness of Japanese Yen fueled the upward gains moves of AUD/JPY to take it to 92.84 level. Considering all these facts further gains cannot be ignored.

For the near term we can expect support near 91.15. If this support holds and a break over 92.48 takes place then AUDJPY is expected to target 94.50. 94.50 should bring resistance because of the psychological aspects of 95.00.

On the downside even a break of 91.15 support should bring a stronger support near 90.20. For over two months the pair has not broken below 5-week EMA level and the current 5-week EMA is near 90.20. This support level is also important because of the psychological support of 90.00.

Australian Dollar against the U.S. Dollar

While Australian Dollar’s has been appreciating against Japanese Yen, movement of AUD/USD has been in a very volatile sideways range for past two years.

AUD/USD Price Action During Past 2 Years

AUD/USD Weekly Chart- volatile sideways

This fact also indicates that the strength of Australian Dollar cannot be considered as the absolute strength of the currency and more because of the relative strength against the Yen . The moves which we are seeing in AUD/JPY is more due to the weakness of Japanese Yen, coupled with overall positive outlook of Australian export sector. This indication about the lack of absolute strength of Aussie is important to keep in mind while trading with AUD/JPY also.

 

Australian Dollar – Stuck Up With The Push and Pulls

November 13, 2012 in Forex Analysis

AUD/USD remains in the short-term pricing channel since the beginning of October and without showing the signs of any good volatility. The price generally has been finding support near the 55-day EMA and well above the 220-day moving average. On October 23rd when it fell strongly to break 55-day EMA support, the support came just below 22-day moving average.

AUD/USD - recent price action

Australian Dollar, being a commodity currency fluctuates greatly with the total global economic outlook and also from the economic outlook from China.

The Push – China Economic Data

The recent economic data from China has been generally encouraging. The Chinese exports grew in October by 11.6% which was much better than the market estimates of 10%.

Though Copper imports fell by 16%, on year on year basis, in October but the Oil and Iron Ore imports rose 14% and 13% respectively. This reflected in the consecutive 5th weekly rise in the iron ore prices which went up to US$ 122 per metric ton.

The electricity generation rose to 397.5 billion kWh which was 6.5% rise on year-on-year basis and that reflected in the rise in coking coal prices. The increase in coking coal price was  4.7% during the last week when it went up to US$ 157 per metric ton.

Australian Dollar and Chinese Data

Iron ore contributed to 20% of total Australian exports during the last year. Any increase in the demand and prices go straight in favor of the Australian Dollar. Coal contributed 15% of Australian exports in 2011 and the rise in demand and prices are again being reflected in keeping the AUD/USD well abobe 200-day moving average and also 55-day EMA.

iron ore spot prices newcastle coal prices

*Source: ANZ Research (ANZ.com)

The Pull – Euro Zone

The ongoing Greece bailout uncertainties have been keeping the market sentiments mixed for long and the recent cut down of the growth forecast of Euro zone for 2013 added to the overall bearish side of the sentiments. European commission has cut down the growth forecast from previous 1% to 0.1% for 2013. The growth forecast fro Germany was also cut down to 0.8% from 1.7%.

What do we have today:

Yesterday’s home loans data came out poor from Australia. The change in home loans dropped to 0.9% in September from the previous 1.8%. The market estimates were for a change of 1%.

Today we have ZEW economic confidence survey reports from European Monetary Union as well as Germany. ZEW reports are scheduled to be released at GMT 10:00. We also have Monthly budget estimates from the U.S. to be released at GMT 19:00. Westpac Consumer confidence report from Australia is scheduled at GMT 23:30 today.

Any unexpected data from the above may cause a change in the volatility of AUD/USD to higher side. If that does not happen that the pair may keep the same pace under the psychological level of 1.0500.