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Australian Dollar Outlook: Surging Iron Ore Prices to Underpin AUD

IRON ORE PRICES, COVID-19 SUPPRESSION TO UNDERPIN AUD
The cyclically-sensitive Australian dollar seems poised to outperform its major counterparts in 2021, as the island nation keeps the novel coronavirus at bay and continues to benefit from strong demand for its most valuable export, iron ore.

Although a fresh outbreak of Covid-19 in New South Wales and Victoria has forced interstate borders to shut down, case numbers are nowhere near the levels that forced Victorian Premier Dan Andrews to enforce one of the world’s harshest lockdowns in September of last year.

The implementation of robust contact tracing schemes in the nations two most-populous states has permitted venues to remain open, with mandatory mask-wearing and reduced capacities in indoor settings the only notable adjustments in social distancing measures. This will likely allow the Australia to continue its economic recovery relatively unabated.

Moreover, surging iron ore prices may also underpin the trade-sensitive currency in the medium term, as Chinese demand remains elevated and the metallic rock continues to hover above the psychologically imposing $1,000 mark.

AUD/USD DAILY CHART – EYEING RESISTANCE AT 0.7800
The technical outlook for AUD/USD rates continues to favour the upside, as price tracks firmly above all 6 moving averages and remains constructively perched above psychological support at 0.7600.

With the RSI eyeing a push back above 70 and the MACD indicator travelling at its highest levels since July, the path of least resistance seems higher.

With that in mind, a retest of the 2020 high (0.7742) looks likely if support at the December 17 high (0.7640) holds firm, with a daily close above needed to bring the 127.2% Fibonacci expansion (0.7801) into focus.

Alternatively, sliding back below the 8-day exponential moving average may trigger a pullback to confluent support at the Pitchfork median line and 78.6% Fibonacci (0.7573).


Reference by: Daniel Moss, Analyst for DailyFX

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