AUD/USD, Iron Ore, Wool: Levels, Ranges, Targets

Australia’s Neutral interest rate at 3.5 and current OCR at 1.5 is fairly well positioned not only in terms of Australia alone but 3.5 based on Debelle’s speech sits below Canada and the UK and above Europe and the US. Australia need to move current interest rates is zero although two factors down the road for consideration. If the Neutral Rate rises, Australia will be forced to raise. If the AUD/USD exchange rate rises to unacceptable RBA levels then a hard decision by the RBA would ensue to lower OCR.

The current drivers for AUD/USD as most vital to Australia’s economics and exports is Australian Iron Ore prices are set daily by the United States. Australia is the world’s largest exporter of Iron Ore. Secondly, Australian Wool is experiencing a tremendous resurgence in demand especially from China.

Australia is the world’s largest Wool producer and exporter and Wool was the second largest export for Australia in 2006 – 2007 followed by Beef. Peak Wool production and exports occurred from WW2 to absolute Peak in 1951. Wool is auctioned daily in Australia and the most vital indicator is the Eastern Market Indicator, the EMI.

Like NZD Milk and Auctions, the EMI is priced in AUD as well as USD. AUD Wool since Aug 2015 trades comfortably above USD based on today’s Wool prices. The Current Wool supply remains low while demand is extremely high and offers the Wool industry an extraordinary opportunity. The problem with Exports to China is the current 38% Tariff placed on Wool imports. Trade negotiations are underway to eliminate or lower the Tariff.

At current AUD/USD 0.7900’s Exporters as well as the Wool and Iron Ore industry gains profits but if AUD rises higher then those profits are cut. Debelle’s statement on a higher AUD as unacceptable for Australia was as much Export as well as inside Australia economics related.

AUD/USD. Remember last post and AUD/USD 0.7790. AUD climbed to 0.7963. AUD remains at current prices Richter Scale overbought. Longer term averages 50 to 253 Day are in the twilight zone.

AUD break points today are located at 0.7937 and 0.7906. The sell point is located at 0.7961. Overall targets lower are 0.7899 and 0.7882. Over the days ahead, targets begin at 0.7764 and travel lower to 0.7670’s.

 

Brian Twomey

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