After flirting with 0.75 support area over the past couple of days, the Australian dollar has now decisively broken below the support and it is down almost 100 pips from there. The continued selloffs in commodities vital for country’s exports are weighing on the Aussie.
Today there have been major selloffs in commodities in China. In Dalian Commodity Exchange, Iron ore, which contributes about 4 percent to the Australian GDP, declined by 8 percent to yuan485 per ton. Coking coal futures were down 6.7 percent yuan 1039 per ton. Thermal coal contract in Zhengzhou Commodity Exchange declined by 2.6 percent to yuan 513 per ton. Gold, which is another key commodity for Australia declined to $1234 per troy ounce in CME.
After last year’s stellar performance, commodities are steadily underperforming in 2017. We suspect that these selloffs are likely to weigh on the Aussie further and exchange rate would decline to test support around 0.72 area. The Aussie is currently trading at 0.74 against the dollar.
