The Aussie has been under intense pressure since the start of the week due to the escalation in flooding afflicting large swathes of Queensland. It has dropped from a high of 1.0250 down to 1.0060/70.
Last week we said that if AUDUSD could sustain a position above 1.0200 then it would herald further gains. So has the high for the AUD already been reached?
We would say no for a couple of reasons: Firstly, if AUDUSD can manage to keep above parity during this natural disaster in Queensland then it would indicate that AUD has some real resilience that could fuel further AUD gains.
Secondly, commodities had a strong start to the year yesterday with oil and gold both rising. The CRB commodities index is at 2-year highs, which bodes well for AUDUSD. In the last three months of 2010 the CRB and AUDUSD had a strong positive correlation of 0.64, so AUDUSD rose when the CRB rose 64 per cent of the time.
We expect this relationship to persist in 2011 so further commodity gains should put upward pressure on the AUD.
AUDUSD (orange line) and CRB index: traditionally the two have a strong positive correlation. Although that has broken down in recent days, we expect this relationship to continue and AUD to follow any further gains in the commodities index.
Source: ActionForex.Com
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