Australian Dollar Fails To Respond To Sharp Price Rally In Commodities

australian dollarThe Australian dollar has been unable to cross the US77¢ barrier despite the strong positive momentum in the prices of commodities such as coal as there were bigger factors at play.

Although the Australian dollar has come close to breaking the US77¢ limit a few times since August, it has repeatedly dropped below the range.

During this time period, coking coal prices have gone up by 150 percent, thermal coal has increased by around 50 percent and iron ore has gone up by 6.3 percent.

These sharp price rises has helped boost trade for Australia which plays a major role and impacts the performance of the currency. Interest rates have also stabilized after expectations of a rate cut by the country’s central bank, the Reserve Bank of Australia but the dollar has failed to rally despite this. According to market experts, the prime reason for this is due to the strong performance of the American dollar in the past few months.

Currency strategist at Westpac Bank Sean Callow has said that the rising market expectation for a rate hike by the U.S. Fed Reserve in December and higher global yields for bonds has resulted in a bullish greenback. The currency has climbed against all key currencies in the recent past, going up by 3.2 percent against the Japanese yen, 2.6 percent against the euro, and 8.9 percent hike on the pound.

According to Callow, the only way the Australian dollar would cross US$77¢ ceiling is if the Fed Reserve fails to raise the interest rates in December or other global central banks issue further monetary easing measures. A Trump victory could also be a reason for the Aussie dollar to surge past the limit as it would mean that the Fed Reserve would hold interest rates steady.

Regardless, experts believe that the Australian dollar will be able to rally on a limited basis, if at all as the price rise in commodities is not sustainable. In a statement Daniel Been head of forex strategy of the bank ANZ, said,

Commodity prices are now high enough to attract marginal supply back into the market. Hence, we believe the majority of gains are behind us, which suggests there is limited further upside to the Australian dollar from this source.

Callow has predicted that the Aussie dollar would be remain below the US70¢ range during the last quarter of 2017.