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Aussie Signals Uptrend On Reversal In Iron Ore Price

australian dollarThe AUD/SGD currency pair had fallen from a high of 1.0983 in January 2015 to 0.9709 in January 2016. China is the largest importer of iron ore from Australia. Thus, the economic slowdown in China continues to have a negative impact on the Australian dollar. Similarly, the Singapore dollar is probably the only Asian currency, which usually rises or falls in tandem with the Chinese Yuan. However, the Singapore economy is more dependent on the export of electronic goods and refined oil. The disparity between the products, which contribute to the majority of the export revenue, had ultimately made the Aussie weak against the Singapore dollar.

The Chinese economy has shown little signs of recovery so far. In fact, according to the economic data released on Tuesday, the imports declined 13.8% in February. From $63.29 billion in January, the trade surplus decreased almost 50% to $32.59 billion in February. In spite of these negative data, the Aussie continues to gain the Singapore dollar.

Firstly, the price of crude oil has appreciated by over 40% in the past few weeks to touch a high of $40 per barrel. Even though, Australia is not an exporter of crude, a rise in the price of crude is generally perceived as an indication of a turnaround in the global economic downturn. Furthermore, Chinese economic data indicated that the country imported 31.80 million metric tons of crude oil in February. This constitutes a 19% increase from the 26.69 million tons imported in January.

Secondly, following the Beijing’s announcement to induce further growth through easing measures, the price of iron ore skyrocketed 19% in a single day to hit $63.74 per ton. The Australian economy will certainly benefit from the rise and so the Aussie rose against the Singapore dollar.

Finally, most of the high cost copper, zinc and lead mines are in the process of shutting down due to low prices. Most analysts believe that the commodities have found a bottom, at least temporarily, and there is little chance for the traders to see new lows in the rest of 2016. Thus, considering these facts, we can expect the AUDSGD pair to appreciate in the coming weeks.

Technically, as shown in the image below, major resistance for the AUDSGD pair exists at 1.0781. Major support is 1.01568. Minor resistance exists at 1.0408 levels.

AUDSGD Pair: March 11th 2016

The currency pair is expected to re-test the major support of 1.01568 before rising firmly. A forex trader can take a long position near 1.0150 levels with stop loss below 0.9950. The target for the long trade is 1.0750 where the 61.8% retracement line, representing the fall from 1.1389 to 0.97212, exists. The risk to reward ratio for the trade is 1:3. A binary options trader should consider purchasing a one touch call option contract with mid-April expiry. The suggested strike price for the call option contract is 1.0400.


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