Australian Dollar Outlook: Surging Iron Ore Prices Push AUD/USD Higher

Australian Dollar, AUD/USD, Iron Ore, U.S. Stimulus, Covid – Talking Points

  • U.S. Stimulus talks progress, but government shutdown may occur over weekend
  • AUD/USD pushes into fresh multi-year highs on AU jobs report, iron ore price surge
  • Covid deaths hit new record in the United States, Australia watches potential outbreak

Despite a record-breaking number of Covid deaths in the United States on Wednesday, U.S. equities rallied with the Dow Jones, S&P 500, and Nasdaq Composite up 0.49%, 0.58%, and 0.84%, respectively. Wednesday saw over 3,600 U.S. Covid deaths according to Johns Hopkins University. Current hospitalizations also rose to a new record with facilities across the country fearing they may soon run out of ICU beds in the hardest hit areas.

Meanwhile, a second Covid vaccine received approval from an FDA advisory panel Thursday afternoon, clearing the way for emergency use authorization. The group of FDA advisors found that Moderna’s vaccine is highly effective in treating symptomatic Covid patients. Optimism surrounding vaccines has injected fresh bouts of risk taking in markets recently with an improved economic outlook.

On Capitol Hill, lawmakers continued to move forward with a new stimulus deal. This one is thought to be around US$ 900 billion, with direct payments to Americans included, although smaller than those in the initial CARES Act legislation. House Speaker Nancy Pelosi said progress was being made Thursday morning, but the timeline for a final consensus remains hard to say. A final deal was initially intended to be tacked onto an omnibus funding package for the federal government, however, Congress may need to pass a stopgap bill to avoid a government shutdown set to take effect Friday at midnight.

S&P 500, Dow Jones, Nasdaq 100 – 30-Min Chart

Nasdaq S&P 500 chart

Chart created with TradingView

Friday’s Asia-Pacific Outlook

The Australian Dollar has made new highs after highs since the beginning of November. It seems that the trend may likely continue as 2021 approaches. This week’s jobs report provided a primer for the current move higher with the unemployment rate dropping to 6.8% from 7.0%. Strong economic data is likely dampening any dovish RBA prospects even as the central bank discourages a strong AUD.

Another driving factor behind the current AUD/USD strength is iron ore prices. The current contract in DCE iron ore futures is up nearly 4% today. Iron’s price surge is a huge boost for the Australian economy which is the largest exporter of the economically vital mineral substance. Surging spot prices are a welcome development to Australia’s economic budget amid a global pandemic.

AUD/USD vs Iron Ore Futures

DCE Iron Ore vs AUD

However, potential headwinds from Covid clusters across Australia may warrant a close eye for Aussie-Dollar traders. Sydney, Australia’s largest city, was recently told to expect more Covid cases from the New South Wales Premier as the NSW health authorities caution residents to stay home for the next few days.

AUD/USD Technical Outlook:

Now at another fresh multi-year high, AUD/USD has broken above late 2019 trendline resistance. The upward momentum appears capable of pushing prices higher, However the 23.6% Fibonacci retracement level from the October swing low to yesterday’s high may serve as a target on a pullback.

The recently broken trendline resistance may turn to new support given current enthusiasm. Overall, however, AUD/USD appears primed to continue higher without an underlying fundamental shift. MACD divergence has managed to extend on the most recent push higher and RSI remains well above the overbought 70 level.

AUD/USD Daily Chart

AUDUSD Chart

Chart created with TradingView

AUD/USD TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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