Australian Dollar Gains on Commodities


NEW YORK ( TheStreet) -- The Australian dollar was surpassing the U.S. dollar and more than two dozen other currencies as commodities climbed higher in morning trading.

The Australian dollar was the top currencies performer, up 1.7% against the U.S. dollar at $1.0761, after the nation's central bank forecast that consumer prices in 2011 will rise to 3.25%, up from the previous forecast of 3%, and that core inflation will rise to 3%, instead of 2.75%. The Reserve Bank of Australia indicated the potential for more interest rates hikes if it failed to keep inflation within the 2% to 3% target range.

The rebound in commodities Friday, which tanked the previous day after a disappointing jobs report, gave Aussie dollar bulls a boost of confidence in their long positions in this commodity currency. The Australian dollar's commodity currency status comes from the strong ties of the Australian economy to the metals and mining industry.

July copper futures were rising 1.2% to $4.047 a pound and the June gold contract was rising 0.7% to $1,491.70 an ounce Friday morning. Palladium for June delivery was up 2.3% to $727.25 an ounce. Copper producer Freeport-McMoRan ( FCX) was rising 3.1% to $51.38 and peer Southern Copper ( SCCO) was up 0.8% to $35.48. Palladium miner North American Palladium ( PAL) was up 3.8% to $5.76.

FXDD Chief Currency Analyst Greg Michalowski says comparing the intermarket relationship of trades in commodity currencies such as the Australian dollar, New Zealand dollar and Canadian dollar against how commodities such as copper are moving is a useful secondary tool to provide retail traders with more confidence in their positions.

For instance, "if you see a trend line being broken in the Aussie vs. U.S. dollar, that says commodity prices should be going down," says Michalowski. "Now, you look at commodity prices like copper -- are they going down? Yes. Are they breaking a trend line? Yes. And now you have the commodity traders and Aussie vs. U.S. dollar traders focusing on the same technicals -- maybe the same fundamentals news as well."

The U.S. dollar was extending gains against the euro, up 0.1% to EUR 0.68874 after a better-than-expected jobs report Friday, with the Labor Department reporting that nonfarm payroll employment rose by 244,000 in April compared with 221,000 in March. Economists were, on average, expecting a rise of 185,000, according to Briefing.com.

Despite the risk going into Friday's jobs number, Michalowski had said that he was inclined to be long the dollar, predicting near-term strengthening.

On Thursday, the dollar advanced against the euro even after the Labor Department reported a faster-than-expected rise U.S. initial jobless claims in the week ended Apr. 30, thanks to the European Central Bank's dovish remarks.

On Thursday, policymakers left the key interest rate unchanged at 1.25%, and during a press conference that followed, European Central Bank president Jean-Claude Trichet spoke less hawkishly than expected -- dampening expectations of a rate hike in June.

"The market was looking for the word "vigilant;" vigilant about inflation -- and Trichet didn't say that at all during his entire press conference or prepared notes, so that suggests that he's more neutral about inflation, more neutral about monetary policy," Michalowski said. "The other thing that he said was that he's concerned about the level of the euro -- in particular in relation to the U.S. dollar. He said that it does play a role in their decision."

"So that also was a clue to the market that the euro at $1.48, $1.49, maybe even at $1.47, is too high for the ECB at this point, and it will have an effect on their economy." Michalowski says the markets had expected the key interest rate in Europe to rise toward 2% by the end of the year, but the expectation has now been slashed to 1.75%.

Trichet's decision came as factory orders and retail sales in Germany, the strong economy in Europe, dropped 4% and 2.1% respectively in March from the month before.

Shares of precious metal producers were rising in tandem with the Australian commodity dollar. Barrick Gold ( ABX) was up 1.9% to $47.72, Newmont Mining ( NEM) was rising 1.7% to $55.61, Kinross Gold ( KGC) was popping 2.6% to $15.16 and Goldcorp ( GG) was spiking 2.9% to $50.15.

-- Written by Andrea Tse in New York.

>To contact the writer of this article, click here: Andrea Tse.

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