AUD gains countered by falling iron ore prices
Written by
Daily Currency Update
The Australian dollar retreated through trade on Monday amid a sharp decline in iron ore prices and upswing in US treasury yields. After surging above US$0.66 and toward highs just short of US$0.6690 following last week’s US non-farm payroll print, the AUD met selling pressures as investors pared gains ahead of tonight’s all important US CPI inflation update. January CPI data surprised to the upside, triggering a surge in US yields as investors were forced to delay Fed rate cut expectations, driving the AUD toward lows near US$0.6450. Markets appear nervous through trade on Monday and content in preparing positions for another inflation surprise. With the AUD under pressure, a further 6.6% slump in the iron ore price compounded moves and while we have seen some divergence in the correlation between the iron ore price and the AUD, the collapse of the Chinese property market and stockpiling of supply in Chinese ports could see prices fall further in the coming weeks and act as a drag on any AUD recovery.Our attentions are squarely affixed on US inflation data and a headline inflation increase of 0.4% month on month and annual decline to 3.7%. A miss will likely add pressure to calls for the Fed to keep rates steady for longer, lifting US yields and driving the AUD lower, while a softer print could be a catalyst to propel the AUD back toward and through US$0.67.
Key Movers
Price action across majors was muted through Monday as investors chose to pare positions ahead of tonight’s all important US inflation update. After the surprise upside print in January, investors pushed US yields higher on expectations price pressures may remain elevated. With markets pricing in a fed rate cut in June, any deviation from median estimates will drive volatility and either extend last week's USD sell off or provide a catalyst for the USD to recover losses and stave off near term downside risks. With the USD finding support, the GBP underperformed, reversing Friday’s gain and sliding back to 1.28, while the euro gave up 1.0975, sliding back toward 1.09. The Japanese yen was the only major offering resistance on the day, up slightly amid speculation the BoJ is on the verge of a pivot in monetary policy. With GDP data revised up and out of contractionary territory the optic of a BoJ adjustment are now more palatable and may be the catalyst officials need to finally pull the trigger and move away from negative rates.Expected Ranges
- AUD/USD: 0.6520 - 0.6720 ▼
- AUD/EUR: 0.5980 - 0.6100 ▼
- GBP/AUD: 1.9280 - 1.9580 ▲
- AUD/NZD: 1.0650 - 1.0750 ▼
- AUD/CAD: 0.8880 - 0.8980 ▼