AUD continues its strength driven by iron ore contracts, and USD retains downward momentum with speculations that BoJ will intervene through dollar buys

•  Surging iron ore price drives AUD to new highs
•  DXY trades beneath the 90.00 price level and selling pressure re-charged by the Fed’s dovish stance
•  Bank of Japan expected to leave its monetary policy setting unchange

AUD has made new highs with strong momentum that is likely to extend into 2021. Besides the promising job report, another key factor driving the price is iron ore. Currently the most actively traded contract in Dalian Exchange (DCE) has gone up nearly 4% today. Iron’s price surge has always been a critical boost to the Australian economy, who is the largest exporter of this economically vital mineral substance. Surging spot prices are greatly welcomed especially amid a global pandemic.

USD, on the other hand, continues its precipitous decline during the last trading session. Its weakness grows against major counterparts and seems to have been recharged by the Fed’s dovish stance. DXY is now trading beneath the 90.00 price level and may be moving towards its 2018 lows. With Brexit trade talks still ongoing, GBPUSD price action may determine where USD will head next.

On Capitol Hill, policy makers are still discussing the stimulus deal. Current progress is thought to be around $900 billion, with direct payments included. House Speaker Pelosi stated that, despite progress being made, timeline remains unclear. As of yesterday, a massive government funding bill has been proposed to prevent the shutdown, but there is still a likelihood that shutdown will come during weekends, starting Friday midnight.

USDJPY closed the Thursday session with a loss of 0.35%, dropping from 103.40s to its lowest level since March. Analysts expect Bank of Japan to keep its monetary policy setting unchanged with rates at -0.1% and 10-year bond yield target at around zero. As of the asset purchasing, BoJ is expected to continue to cap it at 12T JPY for ETFs and 180B JPY for J-REITs. As for the COVID measures, markets have already priced in the extensions on the COVID aid which is now set to expire in March 2021. However, there has been speculations that BoJ will intervene to prevent USDJPY from further falling as it has already lined up a $6 billion in its ammunition to boost its USD holdings.