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Australian Dollar to Remain 'on Top' say Westpac

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The Aussie Dollar is the strongest currency in the G10 in 2017 having risen an average of 6.7% versus its counterparts.

The continued appreciation in commodities is a major factor in the Australian currency's strength as a large slice of the country's exports are made up of commodities.

Iron ore is the country’s single largest export and it has risen in price to $94 per tonne from previous levels of $60 in the summer of 2016, and this too has supported the currency.

Westpac’s FX Strategist Sean Callow thinks prices will probably continue rising and therefore will likely prove supportive to the currency.

“Spot iron ore prices this week reached highs since August 2014 around $94/tonne and seem likely to break $100 soon,” says Callow in a note to clients dated February 23.

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Callow dismisses fears over China’s monetary policy tightening impacting on its hunger for commodities saying its fiscal spending infrastructure plans remain “firmly entrenched”.

Coal, another major export, is likely to see continued strong demand from China, after it imposed sanctions in North Korea and limited its own supply.

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From a monetary policy perspective, the Reserve Bank of Australia appears to be emphasising the unlikelihood of it cutting rates for the rest of 2017 despite below target inflation.

Demand for recent record issues of Australian bonds have seen low foreign participation, but Westpac put this down to the fact they have been mostly 10-year bonds which I a maturity which is favoured by domestic investor, as well the low hedge-fund allocation.

'We remain upbeat on AUD on a range of crosses near term, extending the Aussie’s strong run so far in 2017. But again, a resilient US dollar should limit AUD/USD to the 0.7750/70 area near term," says Callow.