Aussie to strengthen on rally in Iron ore, coking coal

In our March 17th article, we had predicted the Australian dollar to decline against the Greenback, on the basis of poor job additions in February. We had also pointed out that the US dollar would strengthen on Fed’s affirmation to raise benchmark interest rates at least twice later this year.

Furthermore, to currency traders, we had suggested short position in the AUD/USD pair near 0.7720, with a take profit target of 0.7610. A put option was recommended for binary option traders. As forecasted, the pair hit our target in a week. Currently, the AUD/USD pair is trading near 0.7480. We forecast a short-term uptrend from the current level on the basis of the facts provided in the following paragraphs.

The Aussie is expected to get a boost from a probable increase in the price of iron ore and coking coal. The tropical storm Debbie, which hit northeastern Australia in the last week of March, has considerably affected the output from mines. The short-term disruption in production would likely affect the supply of high grade (62%) iron ore and push the price upwards. Iron ore has gained about 4% in the past few days to trade at about $67 per ton.

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The storm has also affected the productivity of coking coal mines, which is an important raw material used by the steel industry. The price of coking coal, which fell to a low of $150 per ton in mid-February, has already gained more than $100 to trade at $263 earlier this week.

In the meanwhile, the economic data from the US, released last Friday, was not encouraging. The flash manufacturing PMI reading hit a seven month low of 52.8 in April, against the market’s expectation of 53.9 and below last month’s reading of 53.3.

Similarly, the flash services PMI reading also hit a seven month low of 52.5, versus analysts’ expectation of 53.7. In March, IHS Markit reported a reading of 52.8. Thus, fundamentally, the AUD/USD pair is expected to rally on the basis of above discussed economic data.

As seen in the image below, the stock has formed a near double bottom pattern with base at 0.7480. An increase in momentum is indicated by the stochastic oscillator, which has made positive divergence with the price. Thus, we can expect the pair to rally to a level of 0.7640 where the next resistance exists.

A currency trader can make monetary gains from this report by opening a long position in the AUD/USD pair, near 0.7480. To mitigate speculation related losses, a stop loss order is advised below 0.7380. The profit can be booked near 0.7640.

A similar setup can be constructed in a binary market by investing in a call option. Since the forecast is for a short-term, the trader should choose a contract which expires in 7-8 trading days. It is also better to invest when the pair trades near 0.7480 in the currency market.