AUD/USD Intermarket: Copper & Dow shipping index is in the driver’s seat

The Aussie dollar is closely tracking copper prices and the Dow Shipping index since late December suggesting the currency is exposed to the unwinding of the reflation trade.

Copper prices on Comex rallied from $2.4210/pound (Nov 15 low) to $2.8158 (Feb 13 high) before deflating to $2.6255/pound on March 22. The rally to a high of $2.8158 was the result of Trump trade… a hope that President Trump would embark on an expansionary fiscal policy that would involve heavy infrastructure spending.

AUD/USD rallied from 0.7170 (Dec 23 low) to 0.7749 (Mar 21 high), before deflating to 0.7639 levels in line with the weakness in the copper prices.

Similar correlation is seen between the Dow global Shipping Index, which rallied from 494 (Dec low) to a high of 548 (Jan high). The index fell to 514 on Feb 8… Aussie followed suit and dropped to 0.7491 before turning higher to 0.7749 in line with the rebound in the shipping index.

What’s next?

The unwinding of the Trump trade could weigh heavily over Copper prices and Shipping index. We could also see broad based USD weakness; however, given the Aussie’s strong correlation with both, it is safe to assume the currency may have a tough time if the unwinding of the Trump trade gathers pace.