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Grain traders have all eyes on the dollar

Matt Schmerl.
Matt Schmerl.

WITH the Aussie dollar nudging key technical levels at the same time global markets are weighing the consequences of a potential US debt default, which way our currency heads from here could be critical to cash markets for Australian grain going forward.

Lets face it, all else being equal, a one cent move in the Aussie dollar will generate a A$3-4/MT fluctuation in grain and pulse prices.

For example, if the AUD was currently trading at April 2013 levels of 1.04 right now, a South Australian wheat farmer would be receiving closer to A$243/MT NTP Port Adelaide than the circa A$266/MT they are seeing in the current market.

The currency influence is less clear-cut in Northern NSW and Southern Queensland - where domestic demand has a stronger hand in the pricing dynamic - but the impact on prices can still be substantial.

Charts, models and algorithms are the stock and trade of the shiny bums in suits riding the currency screens at the big end of town, and let's face it - we're probably all a bit more comfortable in King Gee than Hugo Boss.

That said, there are, however, a couple of broad drivers we can all understand.

US Debt Ceiling Negotiations are front and centre right now, and several analysts are suggesting a bullish reaction for the Aussie dollar.

The thought process is that from a "risk asset" perspective, the AUD could benefit from a resolution to the current impasse. Conversely, if the parties fail to reach agreement, the argument goes that the US Dollar suffers against other currencies as the global investment community dumps US denominated assets.

It's hard to believe a resolution won't be achieved, but a bullish "risk on" reaction from the markets in the likely event of a resolution would probably only have a short term emotional impact on the currency.

Chinese economic data is also key to sentiment regarding the Aussie Dollar.

Recent Chinese economic data releases have been a little mixed - with disappointing export data last month, juxtaposed against a 10.4% increase in energy consumption and 7.4 year on year import growth for September.

The general consensus appears to be a little more positive on the Chinese economy than markets were pricing in a month or two ago.

Interest Rate Differentials are also key to currency movements, given the relativity between Australian and US interest rates helps drive money flows from yield chasing investors. This tightening differential has arguably been the key contributor to the AUD's depreciation. Meanwhile, the Aussie dollar reached as high as 95.34 on Tuesday - its highest level since June - and is now within spitting distance of some key chart levels.

Topics:  aussie dollar commodities exports grain markets


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