Richard Franulovich, analyst at Westpac, explained Iron ore prices rose 18.6% overnight. Questions of sustainability aside, the sharp rise in iron ore prices has important implications for our G10 FX model and its appetite for AUD.
Key Quotes:
“Higher iron ore prices will boost AUD via our long run terms of trade valuation signal, a stronger yield signal and through sentiment channels in our growth signal.
The net impact based on our model signals lift AUD’s equilibrium by around 2-3%, at least.
The rise in iron ore prices is not a game changer from our model’s perspective but it certainly boosts AUD’s attractions. Our models suggest that the boost to Australia’s terms of trade, yields and the indirect sentiment boost to growth raises equilibrium for the currency by a solid US2-3 cents, all other things equal.”
(Market News Provided by FXstreet)