Iron ore rally should support the Aussie dollar and the ASX

Quick Recap

The Dalian iron ore rally continues with the price moving from 414.5 Friday morning to close the week at 435 where it should open this morning. That’s a rally of more than 5% on the day and a long way from the 370 odd low earlier this month.

That can have profound implications for the Aussie dollar and, along with the rally in crude suggests that the commodity cycle may be turning.  That could have profound implications for the global inflation outlook and as a consequence push both the Fed and BoE closer to the tightening cycle that they seem keen to embark on.

Time will tell obviously and for the moment it feels like forex traders don’t trust either the iron ore rally nor the one in crude oil. But they are medium term game chnager for inflation and with that central bank policy making.

More immediately the Nasdaq rocketed higher last week and Friday saw it make further gains to close at a fresh all-time high. The Dow and S&P  went along for the ride with Microsoft the standout up more than 10% on Friday.

Durable goods orders on Friday printed a massive 4% against expectations of just a rise of 0.6%. Thta’s huge but when you strip out defence and aircraft the data printed much worse than expected at -0.5%. That’s what kept things humming along in stock markets and helped US bonds rally.

On the ASX 200 we saw a stellar rally on Friday with a gain of 1.5% which was then built on in futures trade overnight. I’ve had a good look at the ASX 200 in my AUSTRALIAN DIARY: Everything you need to know about the week ahead at Business Insider.

If the ASX 200 can’t get up and through 6,000 this time then it’s time to buy some serious puts.

On forex markets the Euro rally continued. This one feels like it has more oomph than the speculative spikes higher of the past two months into the 1.1050/90 zone. But this is still the key level and area to watch. For the momentn though the key risk/impetus will be US Q1 GDP and FOMC meeting on Wednesday night/Thursday morning.

On the day

On the data front it is a quiet day in Asia today with nothing material in Australia, New Zealand has a day off for Anzac Day. Tonight we get German import price data, CBI Industrial trends in the UK and Markit services and composite PMI in the US.

Here’s the overnight scoreboard (8:19am AEST):

• Dow Jones up 0.12% to 18,080
• Nasdaq up 0.71% to 5,092
• S&P 500 up 0.23% to 2,117
• London (FTSE 100) up 0.24% to 7,070
• Frankfurt (DAX) up 0.74% to 11,810
• Paris (CAC) up 0.44% to 5,201
• Tokyo (Nikkei) down 0.83% to 20,020
• Shanghai (composite) down 0.46% to 4,394
• Hong Kong (Hang Seng)up 0.84% to 28,060
• ASX Futures (SPI June) up 24 to 5,960
• AUDUSD: 0.7823
• EURUSD: 1.0866
• USDJPY: 118.92
• GBPUSD: 1.5173
• USDCAD: 1.2182
• Crude: $57.42
• Gold: $1,179

CHART OF THE DAY:

GBP – Weekly: The BoE like the fed seems like it wants to start to push rates higher. That was reflected in the MPC minutes last week which helped Sterling turn around what had been a weak period.

Now after a two-week rally GBP has broken out of the 9-month downtrend.

We’ll give it a few more days but if the week ends with Sterling still above the downtrend and Euro rising we’ll know the period of US dollar strength is at the very least in hiatus.