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11 Mar 2014
AUD traders: Limited damage despite Iron ore fall-out
FXStreet (Bali) - AUD/USD has been trading on a weak note ever since breaking outside the daily cloud, with prices now returning back towards the first defending line for ichimoku followers, that is, the daily tenkan.
One of the reasons the Aussie was pressured on Monday, let alone the lower CNY fix or China trade balance, was the fact that ore prices plummeted by over 8% on Monday. Surprisingly though, many are now questioning how the Aussie managed to hold so well - consolidating 10/15 pips above the round number 0.90 - with iron ore suffering such a hammering.
If history is any indication, there is little doubt in one's mind that AUD has proven susceptible to declining ore prices as it suggests a weaker mining industry in Australia and concerns over Chinese demand. However, the fact of the matter is that short term, some discrepancies in price behaviour, call it intuitive moves, are the market's bread and butter; today's limited losses on the AUD on the back of the second largest decline in ore prices ever could be interpreted as a clue of a market still reluctant to commit too aggressively on shorting the AUD.
This suggests that any pick up on risk and/or Australian economic indicators presenting further upbeat numbers, may see the AUD/USD again well bid as limited losses on bad news may communicate smart money is still favouring higher levels in the days ahead should conditions improve.
One of the reasons the Aussie was pressured on Monday, let alone the lower CNY fix or China trade balance, was the fact that ore prices plummeted by over 8% on Monday. Surprisingly though, many are now questioning how the Aussie managed to hold so well - consolidating 10/15 pips above the round number 0.90 - with iron ore suffering such a hammering.
If history is any indication, there is little doubt in one's mind that AUD has proven susceptible to declining ore prices as it suggests a weaker mining industry in Australia and concerns over Chinese demand. However, the fact of the matter is that short term, some discrepancies in price behaviour, call it intuitive moves, are the market's bread and butter; today's limited losses on the AUD on the back of the second largest decline in ore prices ever could be interpreted as a clue of a market still reluctant to commit too aggressively on shorting the AUD.
This suggests that any pick up on risk and/or Australian economic indicators presenting further upbeat numbers, may see the AUD/USD again well bid as limited losses on bad news may communicate smart money is still favouring higher levels in the days ahead should conditions improve.