"the Australian Dollar And Commodities: Correlations For Forex Profit"

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"the Australian Dollar And Commodities: Correlations For Forex Profit"

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Australian Dollar Follows Commodity Prices

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Australian dollar in 2022 went on the defensive as the US dollar roared higher and the Fed was more dovish than expected.

The market returned from the holiday season and immediately saw Treasury rates rise. Some of these initial steps were considered repositioning.

As the break began, there were concerns that the Omicron spread could force the Fed to reassess its tightening stance in December. at the FOMC meeting.

Aud/usd And Commodities Decline As Dollar Rally Resumes

Shorts in Treasury futures were reduced, among other positions. It seems that in 2022 many of these positions were reoccupied. AUD/USD is close to pre-holiday levels.

After the positions were returned, the market realized in December. minutes of the FOMC meeting. The document showed that the tightening schedule had been brought forward.

As a result, Treasury yields continued to rise and interest rate spreads between Australia and the US narrowed. This scenario looks set to continue until the RBA meeting in early February.

When the central bank meets, it will have Q4 inflation data. Most Australians came out of quarantine during the quarter, so price pressures looked likely.

What Factors Impact The Australian Dollar Value?

The latest data puts the annualized CPI at 3.0%, which is at the upper end of the 2-3% target range.

However, their preferred measure of the reduced average is 2.1%. Any significant shift in this gauge could change the language or accelerate the scaling back of their asset purchase program.

As US yields rose, the US dollar found support, mainly against high-beta growth-linked currencies such as the AUD, CAD, NOK and NZD.

However, while this has been happening, Australia's commodity exports have continued to rise against the US dollar, or in some cases move sideways. In particular, an increase in the prices of iron ore and energy raw materials was observed.

Aussie Dollar Is 'stealth' Inflation Play

In late October last year, both commodity price and interest rate differentials reversed at the same time, hurting the AUD. As a result, the currency depreciated to its lowest level in early December, slightly above 2020. in November lowest at 0.69913

So far, interest rate markets appear to be working against the Aussie, with commodity exports supporting it.

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Explainer: How The Australian Dollar Affects The Results Of Companies

By checking the box below, you confirm that you are not a resident of the United States. The Australian dollar fell after the RBA put rates on hold again and signaled possible tightening. Given that most economists were expecting a rise, the Australian dollar was ripe for a downturn. US dollar strength also supported the decline after the Treasury raised its estimate of net borrowing.

Oil price rally poised for break as US stocks soften and dollar gains. August is off to a slow start for energy traders as the demand outlook could push prices higher. The oil market is likely to remain tight even if oil giants like BP (NYSE: BP ) start raising prices. Oil remains one of the most attractive deals and buyers are likely to appear every time.

Gold prices see no safe-haven flows as US stocks fall as the US dollar retreats as yields rise. Gold will need Treasury yields to decline, but that may not happen until the market has priced in all longer-dated Treasury issuance. Gold's moment in the sun is coming, but first markets need to see the end of the bond market sell-off.

If the bearish momentum continues, gold may find significant support at the $1,940 level. Until we get to Apple's ( NASDAQ:AAPL ) earnings and NFP report, positioning may be limited.

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The Australian And Canadian Dollars Are Commodity Proxies

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With the Australian dollar stabilizing below the 70¢ mark, the Bloomberg Commodity Spot Index, which tracks 23 energy, metal and grain futures, has surged 36 percent since January to its peak in early June. Although prices have fallen since then, the index remains up nearly 15 percent this year.

ANZ FX strategist and macro economist John Bromhead said he had been tracking the spread between the Australian dollar and commodities for several years, noting that the transmission channels for commodity prices to the Australian economy had been "weakening for quite some time".

Aud/usd Weekly Forecast

"When the Australian dollar tends to track commodities, commodities are giving you a signal about underlying global industrial demand," he said. "The Australian dollar is a cyclical currency - it's very cyclical - so when commodity prices are driven by strong demand, that's a good sign for the currency."

"But we've seen a big story of supply recently... prices were seen to be much higher than they would have been because of supply issues... We've seen this story of ESG lately and continued underinvestment in coal and gas." The high prices we're seeing are more supply-side than demand-side, meaning it's less positive for the currency.

Mr Bromhead attributed the long-term decoupling to three reasons: a lack of new investment, the offshoring of assets and a shift in fiscal priorities.

First, he said, the mining boom saw a strong correlation between higher commodity prices and new investment in the sector. This, in turn, used up a lot of labor and drove up wages, tightening the economy and putting pressure on rates. However, new investments have declined.

Australian Dollar Outlook: Commodities Weigh On Aud/usd. Eyes On Fomc, Rba Minutes

"We had this unprecedented capacity expansion during the mining boom ... all the projects were built, so what's happening now, we don't have the same response in mining investment to changes in commodity prices," he said.

"If you look at the Australian mining investment pipeline, it's basically doing nothing and commodity prices have shot through the roof."

Secondly, Mr Bromhead points to wealth and income from mining projects being moved overseas. "About three-quarters or more of the revenue and wealth we get from these mining projects goes offshore," he said.

“Typically one of the benefits you'll see is that when BHP and

Australian Dollar Loses Ground Despite Solid Confidence Indicators

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