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In view of Greg Gibbs, Analyst at Amplifying Global FX Capital, the AUD continues to draw some strength from commodity prices as Chinese metals futures prices have firmed this week.

Key Quotes

“Some have argued that China is and will continue to ease monetary and fiscal policy to offset risks from tariffs and tightening shadow-banking finance.   And this will support demand for Australian commodities and the AUD.”

“However, the AUD has proven more reactive to indicators of stress in global financial markets so far this year.   We would be wary of any rise in commodity futures prices in China in the context of a weaker CNY and financial market stress.   Investors in China may consider them a hedge against the Chinese currency and financial assets.   Their price rises may be indicative of financial stress rather than a sign of stronger demand.”

“Nevertheless, commodity prices relevant to Australia, especially in the energy sector would be consistent with a significant recovery in the AUD.   The differential between the two is contributing to strong profitability in the mining sector and a narrowing trade and fiscal balance for Australia.”