AUD: Resurgent commodity prices - AmpGFX

Greg Gibbs, Director at Amplifying Global FX Capital, suggests that the AUD is pressing the high end of its range for the year, supported by resurgent Australian commodity prices (coal and iron ore), lifted by improved demand and supply cuts in China

Key Quotes

“Industrial commodity prices, in general, have been strengthening recently, including base-metals.  Apart from China, there has been a broader modest improvement in global demand indicators.

The exception is oil prices that have been undermined by high levels of supply and new capacity that may come on stream quickly if prices rise only modestly.  Focus remains on OPEC’s meeting on 30 November where they plan to agree on caps on production.  Oil prices stabilized today on reports that Russia (outside of OPEC) may join with OPEC in controlling supply to help keep the market in balance.

The lift in commodity prices will boost mining company profits and in turn Australian government tax collection.  However, the trickle-down to new mining jobs and salary increases is likely to be limited. The RBA said in its Monetary Policy Statement that, “The increase in commodity prices over 2016 to date represents a marked change from previous years. If sustained, higher commodity prices will provide some support to growth in nominal income, but are not expected to lead to much additional mining investment over the next couple of years.”