Ingredients for a weaker AUD colliding

The AUD remains the key currency to watch at the moment as weakness in iron ore prices continues to mount pressure on the domestic economy.

Source: Bloomberg

AUD/USD continues to test the 0.7600 level and if it wasn’t for a disappointing ADP non-farm payrolls print, then the greenback could have continued to gain against the AUD. Iron ore slipped below 50/t and hit 49.57/t with analysts growing increasingly bearish. This will ensure our terms of trade remains on the backfoot and will put today’s trade balance in focus. A wider trade deficit is envisaged and if this reading is worse than expected then we could see pricing for a rate cut next week blow out. The drop in iron ore has seen swaps market price in over a 70% chance of a rate cut next week. The ingredients for a weaker AUD are certainly building and this makes for an interesting week of trading. Additionally, should US payrolls surprise to the upside, then a stronger greenback would be a double whammy for the pair. Traders could eye momentum plays on a close below 0.7600.

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