###POV: IS AUD STILL A COMMODITY CURRENCY?...>

AUSSIE: ###POV: IS AUD STILL A COMMODITY CURRENCY?

-An uncommon divergence has emerged between the AUD and commodities (in both

pricing and positioning). Trade-weighted AUD has fallen as much as 4% from

2018's highs despite commodity prices rising just shy of 2017's best levels.

-The same pattern is seen in positioning data: while speculators cut their net

long position in AUD aggressively this year, markets remain well invested in

commodities.

-This shift in positioning and pricing has resulted in the widest AUD -

Commodities spread in over three years. Most importantly, the correlation

between AUD and iron ore, the country's largest export by value, has fallen to

the lowest level since late 2016.

-However, the correlation between the AUD and AU 10y yields is almost three

times higher this year when compared to the five-year average. As such, it's

clear that the AUD's being led by the yield curve (increasingly the short-end)

and not commodity prices (at present) as market focus hones in on the RBA's

policy outlook.