NZD Outstrips AUD Due to the Later Facing Many Unfavorable Factors

Commodity currencies have performed well recently, among which CAD and NZD rocket, followed by AUD that bounces off continuously. I am looking forward to a further increase in the CAD and NZD. While AUD has recovered constantly, whether will the currency keep going up or not, that is a question, because the unfavorable factors are dominant among the basic ones that affect the AUD most for a long time.

Driven by the rising coal prices, AUD has rebounded overall recently. The coal prices are estimated to keep soaring because of the energy shortages in Asia. In addition, among the basic factors which have a long-term bearing on the AUD, there are two major ones, economy and base metals, in the Asian-Pacific region. Many countries in the region released a falling GDP, indicating that the economy has suffered from flood situation, pandemic and energy shortage.

In terms of base metals, copper futures staged a recovery recently, boosting in part the Australian economy, compared with the soaring coal prices that bolster the economy most. However, iron ore remains weak after a plummet. With an energy shortage, it is estimated that the demand of industrial base metals will decline. Meanwhile, many countries determine to take a low-carbon emission policy, continuously decreasing the demand of refined steel and base metals. So the copper futures and aluminum futures prices are expected to adjust enormously after surging.

Im not very optimistic about the future AUD temporarily, due to the unfavorable factors that have a bearing on the currency. On the contrary, the CAD and NZD enjoy more favorable factors. Confronted with a well-performed economy in Canada and New Zealand, the local central banks are likely to introduce hawkish monetary policies in the future including tough measures to hike interest rate. Therefore, the CAD and NZD may be bullish, especially against the JPY, which is possible to be weaker because of the related cross trades.

The governor of Bank of England Andrew Bailey intimates that more pressures are put on the rate interest hikes, sending the pound rising in a short term. But the severe labour shortage in the UK have affected the local economy badly. It is believed that the future economic data issued by the country may reflect the negative influences from the shortage, further ratcheting up pressure on an overall bullish pound in the future.