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Prospects of rise in met coal price turns Aussie bullish

The RBA minutes, released on March 21st , pointing to an increasing risk in the housing market, resulted in a decline of the Australian dollar against the Yen. Additionally, the failure of the US Republicans to repeal Obamacare weakened the Greenback and strengthened the Yen.

Finally, a fall in the iron ore price to a seven week low of $82 per ton fuelled the AUD/JPY pair’s decline to a low of 83.76. However, the AUD/JPY pair has recovered to 84.80 levels in the past two trading sessions mainly due to a lower than anticipated manufacturing and service PMI data from the US. We anticipate the bullish reversal to continue on the basis of the arguments provided underneath.

The price of coking coal, a raw material used by steel producers, is expected to rise sharply as more than a dozen mines in Australia have been shut down due to cyclone Debbie. The rise in the price of coking coal would favour the Aussie. The price of coking coal has fallen to about $150 per ton from a high of $308 per ton recorded in November 2016. Still, the prevailing price is more than twice the traded prices in February 2016.

Tremple

The price of iron ore has fallen to about $80 per ton, after briefly trading near the psychological $100 level earlier this year. Analysts point out that Chinese mills are steadily shifting to the purchase of high grade (62%) iron ore, instead of the low grade (58%). This has created a record inventory of low grade iron ore at the Chinese ports.

The high grade iron ore is less susceptible to price volatility. Furthermore, the cost price of iron ore is only between $20 and $30 per ton for the Aussie mines. Thus, current decline will have negligible impact on the Australian dollar.

In Japan, the consumer prices increased at a lower rate of 0.3% y-o-y in February, compared with 0.4% in the earlier month. Furthermore, the upbeat US GDP growth rate of 2.1% in the fourth-quarter of 2016 has once again turned the Greenback stronger, after a brief period of decline. The data is expected to keep the Yen under pressure. On the basis of the above facts, we believe that the scenario favours the continuation of the AUD/JPY rally.

The price chart indicates support for the AUD/JPY pair at 84.90. The rising momentum indicator underlines the possibility of continuation of the current uptrend. The uptrend is also supported by the lack of any major resistance at the current levels. So, a trader can expect the cross to move up further and test the resistance level of 86.60.

AUD/JPY Pair: April 3rd 2017

AUD/JPY Pair: April 3rd 2017

A currency trader can buy the Australian dollar in exchange of the Japanese Yen, near 84.80. To ward off risk, a stop loss order can be placed below 84. An order to book profit can be placed near 86.60.

The probable uptrend can be traded by investing in a call option or its equivalent offered by a reputed binary broker. It is advisable to buy the option contract when the pair trades near 84.80. Additionally, a date around April 11th should be chosen as the contract expiry date.


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