Date: 17 Oct 2017

Writing on Monday National Australia Bank (NAB) argued that “the fall and rise of AUDUSD, from its Sep 8th YTD high of 0.8125 to Oct 6th 0.7733 low and back to 0.7880 [on Monday], owes much to related USD volatility. Yet the move down in September and early October has been more than simply a USD affair, [with] AUD/USD falling by just under 5% versus a USD rally in (DXY) index terms of 3.5%.” In NAB’s view Aussie-centric factors have therefore been influential drivers of the pair’s price action. In NAB’s opinion “commodity price falls offer a more than adequate explanation for AUD underperformance. While the 22% fall in iron ore prices over this period has been the headline-grabber, in our short term fair value model (STFV) AUD/USD is actually more sensitive to volatility in the gold price than industrial metals or coal (in making intuitive sense of this, consider the very high degree of foreign ownership of the iron ore sector relative to gold miners). So the 7% fall in the gold price has taken a bigger bite out of STFV than [the] much larger fall in iron ore prices.” Traders will make their own judgement on NAB’s conclusion but, at the very least, it’s an interesting idea given how much emphasis the media have been putting on iron ore, rather than gold, as a driver of the AUD’s value.

Written by Neal Kimberley, External Currency Analyst.