What Can Copper Prices Tell You About The Australian Dollar?
The focus has shifted to the commodity markets
in the last few days and the fallout has been seen in the like of AUD, NZD and
CAD. The CAD is likely more vulnerable since it is less of a carry trade in
terms of rate differentials. Nonetheless, soft commodity prices will keep
pressure on these currencies going forward. The question is whether or not the
sell-off on Tuesday and Wednesday was simply a “blip†or the beginning of a
downward trend. The quote below was apparently the catalyst.
“Shanghai Futures exchange
pushed margin requirements to 7% from 6%. Apparently this attempt to reign in
speculators has forced many weak longs out of copper and aluminum. The result
has been a sharp fall in copper and the AUD/USD.â€
Source: 4Cast
As you can see from the above
chart, copper prices are closely correlated with the value of the AUD.Â
The trade data numbers
this morning were worse than expected, that might take some of the pressure off
the commodity currencies as 10-year yields drift lower and traders seek yield.Â
With rates at 6.25% in New Zealand the temptation is too great.