As we pointed out in the previous post, the BNPP has announced its weekly trade idea where it advises to sell the AUDUSD this week for a few reasons. Either way, it’s worth taking a closer look at fundamental metrics being interested in trading the Australian currency in following days. 

 It’s not something staggering that the AUD is quite significantly correlated with iron ore prices which, in turn, are reliant upon Chinese economy’s performance. Hence, it’s good to take a look at that relationship, at least from time to time. Given a short-term horizon (since the beginning of this year) we’ve experienced some decoupling between both lines. To be precise, since mid-April two lines have moved in other directions. 

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 The AUDUSD and iron ore (delivered to Qingdao) prices have moved in other directions as of late. That could point to overvaluation of the AUDUSD. Source: Bloomberg

Taking into consideration the BNPP’s call and comparing that with the chart above one could see some attractive selling opportunity. All in all, we cannot forget about the FED’s meeting on Wednesday, the event could shake markets across the board. At the end of this analysis, one should be mentioned that any rifts on the Chinese economy could bring more weakness to the Aussie.

Meanwhile, the AUD downplayed somewhat recent weak prints of the Chinese PMIs marking just a temporary corrective move. Actually, since then, we’ve observed decent gains following a losing streak of the US dollar.