Recovery Well Under Way

Further declines in the greenback have seen AUD/USD rise again, the pair last at 0.7789. There was support for the upside from higher commodity prices, iron ore rallied for the second day while crude also gained.

• CBA sees iron ore as key for direction of AUD. "Higher iron ore prices (after a period of weakness) likely added to AUD support. Iron ore prices fell recently after the steel‑producing hub of Tangshan in China announced they "will initiate Level II emergency response to heavy pollution weather." In our view, commodity prices (including iron ore) will remain elevated this year and can support a move in AUD above 0.80. However, carbon border adjustment fees are a growing downside risk to AUD over the medium term"
• In terms of option expiries AUD 1.1bln AUD puts roll off at 0.7720-25 tomorrow, while AUD 1.1bn rolls off at 0.7745-60.
• From a technical perspective AUD/USD is firmer but remains vulnerable following the sharp sell-off from 0.8007, Feb 25 high. Last week's move lower reinforced bearish conditions which saw prices fall through 0.7693, Feb 26 low. The break lower signals scope for a stronger bear leg and opens 0.7564, Feb 2 low. Firm short-term resistance has been defined at 0.7838, high Mar 2 and 3. A break would alter the picture and allow for a stronger recovery.
• There are no domestic releases on the economic docket for today, markets look ahead to a speech from RBA Governor Lowe on Monday.