Base Metal Bottoming Should Underpin AUD

From the FXWW Chatroom – Lost in Thursday’s dire Australian CAPEX reading was the strong rally in base metal prices. While generally viewed as China exchange-driven on talk authorities may clamp down on short selling, some of the LME move was US funds continuing to close out short positions ahead of their November 30 discal year-end. The LME’s index of 6 main base metals closed up 2.2% Thursday but remains down nearly 25% for the year. A correction in metal prices would follow on from the past fortnight’s EM/commodity currency correction as the market now fully expects the Fed to hike rates at its December 16 meeting. Recently announced production cuts are not seen as sufficient to sustain a recovery – that would require more stimulus and support from China. Early yet but there are at least some green shoots that this year’s base metal selloff may be behind us. AUD is the obvious beneficiary – if not against USD, it should certainly provide support on the crosses, particularly against NZD and the beaten down EUR. [IFR]

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