Australian dollar to face headwinds

Andrew Masters FIBO Group

The Australian dollar has continued its winning streak today against the US dollar, breaking through the US75c mark as iron ore prices continue to strengthen providing plenty of support for the local currency.

The main driver behind the resurgence in the Iron ore price has been China with demand picking up on the back of more construction works which has pushed up prices recently and demand shows no signs of slowing down,

“China’s spot rebar market surged on Monday after a major producer announced higher ex-works prices .Shagang, a major long steel producer in east China, raised the ex-works prices for its late-May delivery rebar by 300 yuan per tonne.” Noted analysts from Metal Bulletin

Although higher Iron ore prices may support the Australian dollar for some time, the interest rate question is bound to come into play, with the Reserve Bank of Australia expected to leave rates unchanged or even cut them while the market expects higher rates in the US.

As the interest rate difference between the US and Australia becomes smaller, investors are likely to exit the Aussie dollar in favor of the greenback,

“The interest rate differential in favour of the Australian dollar is likely to narrow further as the Fed continues to hike rates and the RBA remains on hold or maybe even cuts rates. This will make it relatively less attractive to park money in Australia putting downwards pressure on the Australian dollar,” noted AMP Chief Economist Shane Oliver,

Author

Andrew Masters

FIBO Group

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