The Australian dollar has bounced back in late trading today after breaking down through the US76c mark, but some say it’s just a fruitless bounce, and the currency will resume it’s down trend as the week unfolds.
At 3.55pm(GMT) the Aussie dollar was trading at US76.36c after hitting a low of US75.80c earlier in the day.
Iron ore, Australia’s biggest export has fallen five out of the last six trading sessions and is now sitting at a six week low. With predictions, it has further to fall, the Aussie dollar is expected to tumble right along with it. Elias Haddad, senior currency strategist at the Commonwealth Bank noted,
AUD/USD is trading heavy near 0.7620 because of lower iron ore prices. Iron ore future prices fell overnight to its lowest level since early February on growing stockpiles at major Chinese ports.
Apart from the tumble in the iron ore price, the Australian economy is holding up pretty well at the moment, which may provide limited support for the Aussie dollar, but ultimately according to some, it will be external forces such as further interest rate rises from the US that will ultimately come back to haunt the Australian dollar.
The local currency has rode a wave of carry trades against the US dollar for the best part of the last decade, as investors took advantage of one of the highest interest rates amongst the major currencies, but that all seems to be coming to an end this year. Marvin Barth, a foreign exchange analyst with Barclays in London.
We see the AUD falling gradually against the USD in 2017, although improving domestic fundamentals and a less dovish RBA should provide support for the AUD, external factors are likely less favorable. Taking into consideration our forecast of two more Fed rate hikes this year while the RBA remains on hold, historically, AUD/USD has more often than not moved in the direction of yield differentials.