Strong iron ore prices (key Australian export) bode well for AUD
Comments from ANZ on the continued strength in the price of Australia's major export. The bank sees this persisting for the next 6-9 months:
- Iron ore futures extended recent gains on the back of a positive outlook for steel demand in China.
- Part of the support has come from the real estate sector, where activity is even stronger than before the crisis began.
- Housing transactions have picked up strongly on the back of pent-up demand, particularly in China. This sector consumes about 40% of total steel consumption and it also has important implications for downstream demand.
On risk though:
- However, continued weakness in the labour market could see this recovery falter, particularly if government support is removed.
A positive input for the AUD is the high price of its major export to China.