The Australian Dollar is gaining ground on data amid a broader trend of global macro tailwinds. While the country’s GDP print has shown a solid recovery in the fourth quarter of last year, it is likely to take a while before the economy fully recovers.
AUD/USD could see bouts of volatility in the month ahead
The Australian Dollar is one of the world’s major currencies. It has been on a downward trajectory against the US Dollar in recent months. However, it is expected to see some upside movement before the end of 2022.
A trade-weighted index, which measures the value of the currency relative to a basket of other currencies, is a better measure of general trends than bilateral exchange rates.
A recent dip in the AUD/USD rate may be related to ongoing concerns about global economic growth. This is especially true since the Federal Reserve signaled an aggressive pace of interest rate hikes in April.
Another factor that could have an impact on the currency pair is the rate at which Australia’s inflation rates rise. The Reserve Bank of Australia (RBA) is responsible for deciding monetary policy.
China’s manufacturing sector was battered by the pandemic
China’s manufacturing sector is a major victim of the novel coronavirus (Covid-19) outbreak. Tens of millions of jobs in factories and urban centers were lost. The pandemic has affected supply chains, logistics services, exports, and demand.
As of September, the National Bureau of Statistics of China (NBS) reported industrial output at 49.6. That is the lowest level since February 2020.
Official estimates of industrial production in September showed the largest drop on record, with factory output falling the most in more than two years. Input prices also contributed to the slowdown, as did wider curbs on electricity use.
While China’s manufacturing sector has begun to see a rebound in activity, the fallout from the COVID-19 outbreak is not over. Many companies have experienced problems in sales and component shortages.
US dollar strength in the first half of financial year 2022
The US dollar has strengthened substantially in the first half of the financial year 2022. This surge is driving the value of the dollar higher against most major currencies.
However, the surge is not expected to retrace in the short term. That’s because the Federal Reserve is aggressively hiking interest rates to combat inflation. While other central banks have been raising rates as well, the Fed is taking the most aggressive action.
Dollar strength is an important indicator of the strength of the global economy. Investors around the world are turning to the dollar as a safe haven.
It has also helped to offset rising inflation and other geopolitical risks. Additionally, investors have poured into the dollar-denominated assets because of the yields they offer. These factors have all contributed to the dollar’s recent surge.
Commodity supply/demand imbalance affects valuations
Commodity supply and demand are key factors that influence the valuation of commodities. This is especially true in the case of bulk commodities. Demand for commodities is also influenced by changes in global activity.
There are many other factors that affect the pricing of certain commodities. For example, changes in Chinese demand may have a disproportionately large effect on bulk commodity prices.
Commodities are produced and traded in a highly competitive environment. But producers don’t have to resort to complex price strategies to make money. They can co-invest with other companies or partner with the value chain. Some companies even finance innovation, production capacity increases, and more.
The key is to understand the evolution of the global cost curve. It gives insight into the price premium that is likely to be earned.
