The AUD ran up to 98c to the USD then fell to just over 60c in the past year. Now it has run back up over 80c. What gives Down Under? Gary Dorsch does a great job of explaining the mystery. As his chart shows, It has run up with the general commodities spike since early March, and has been driven by massive Chinese purchases, ahead of their 2008 pace. As Dorsch puts it:
Thanks to massive government spending on infrastructure, China's daily crude
steel output in May reached 1.5-million tons, equal to an annualized rate of
544-million tons. That compares with 500-million tons in 2008, lifting the
fortunes of Australia's top iron-ore miners, BHP Billiton and Rio Tinto. China's
imports of iron ore is on a record-breaking run, reaching an all-time high
of 57-million tons in April.
Will this continue and drive the AUD to USD parity? Well, maybe not The NYT sees China as stockpiling. "[G} growing evidence suggests that a sizable portion of this buying has
been to build stockpiles in China, and may not be sustainable." Why? "[A]ctual steel production from that iron ore is recovering much more slowly in China, and Chinese steel exports remain weak." The article goes on to note that the Baltic Dry Index of shipping prices shows expectations of weak trade through 2011. Perhaps the Chinese have found a way to recycle all their excess USD holdings - buying commodiites at low prices when shipping costs are low.
The wave count suggests the AUD is peaking.
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