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The Australian dollar and iron ore skyrocketed

09/11/2022

The Australian dollar and iron ore skyrocketed! Stimulus policy is coming?

Recently, a piece of heavy news has aroused widespread concern in the international community - German Chancellor Scholz's visit to China. The Wall Street Journal (WSJ) reported: German Chancellor Scholz used the 11-hour whirlwind visit to sign business agreements and jointly announced new areas of cooperation with China. In addition, Scholz said on Friday that China has agreed to approve the use of BioNTech's new crown mRNA vaccine, a joint venture between the United States and Germany, for foreign citizens living in China. This news immediately triggered speculation in the capital market on whether the world's second largest economy will change its way of fighting the epidemic. In just a few hours, the prices of international bulk commodities have skyrocketed, and the rise of some commodities has reached the highest level in decades: Iron ore surged 5% Copper surged 8% Gold surged 3.4% Silver surged 7.6%

BHP ADR surged 9.75% last Friday. BHP Billiton Group BHP ADR up 9.8% Rio Tinto’s RIO ADR up 3.9%
Even the Australian dollar, which has been falling endlessly recently, rose 2.8% in a single day to around 0.65
The sudden surge in the commodity market is incompatible with the current environment of global economic recession – compared to the past six months, investors’ extreme panic about the global economic recession has spread to almost all capital markets.

The yield curve inversion of U.S. Treasury bonds, the most accurate recession indicator, has also worsened recently. The inversion of the 2-year and 10-year Treasury yields has reached the highest level since 1980, indicating that a severe recession is about to begin. America broke out.

It can be seen that the market’s dependence on the world’s second largest economy and the strong hope of its full opening have led to rapid pricing in financial markets, and the resulting optimism has become a ray of light in the context of global economic recession.

As a commodity currency, the Australian dollar has naturally become the beneficiary of the surge in commodities at the beginning of the year.

Data show that since the first half of this year, after the world’s largest economy started the interest rate hike cycle, the exchange rates of the world’s seven major currencies (Euro, British Pound, Japanese Yen, Swiss Franc, Australian Dollar, Canadian Dollar, and New Zealand Dollar) against the U.S. dollar There were rare plunges.

Among them, the euro and the pound fell below their lowest levels in history, while the Bank of Japan, which has maintained a low interest rate policy, also witnessed the yen falling below its lowest level in 32 years. However, the Australian dollar (AUDUSD) and the Canadian dollar (CADUSD) both recorded gains in the first half. And this kind of countercurrent increase is due to the increase in demand for raw materials and energy commodities in the international market, which has pushed up the value of the two major commodity currencies, the Australian dollar and the Canadian dollar.

The so-called commodity currency refers to the legal tender of resource-exporting economies, such as Australia and Canada. The value of such currencies fluctuates, in addition to central bank monetary policy, largely in line with the movement of commodity prices.

A considerable proportion of the gross domestic product of Australia and Canada comes from resource exports, so the exposure of the currencies of the two countries to commodity prices can also be imagined-when the demand for raw materials in the international market surges, the currencies of the two countries The demand will also increase accordingly (foreign funds exchange Australian dollars, Canadian dollars, and then purchase bulk commodities).

Therefore, as the international community has higher and higher expectations for the gradual opening of the world’s second largest economy, the capital market’s valuation and pricing of commodities and commodity currencies such as the Australian dollar have also increased accordingly.

In addition, at the end of the year, or even throughout 2023, there is another possibility of promoting the rise of the Australian dollar – the narrowing of the interest rate gap between Australia and the United States.

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