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Bounce in global commodities strengthens Aussie dollar

Xinhua, February 23, 2016 Adjust font size:

The Australian dollar has surged to a two month high in offshore trade in line with gains in global equity markets, benchmark oil and iron ore overnight.

At the Asian open on Tuesday, the local unit was trading at 72.28 U.S. cents, up from 71.74 U.S. cents at Monday's close.

The Aussie dollar had trade as high as 72.47 U.S. cents as all other commodity based currency surged following indications U.S. shale production would slow and the rebound in iron ore and copper prices.

Though the price of iron ore rallied above 50 U.S. dollars per tonne overnight for the first time since late October, the bounce is not sustainable and when coupled with uncertain global economic growth, the Australian dollar strength will eventually be curtailed.

"Higher iron ore prices looks to be driven by the weather related supply-side disruptions in Port Headland recently, as well as the impact from the burst dam in Brazil in late 2015 and seasonal restocking by Chinese steel mills following the Lunar new year holiday," Commonwealth Bank of Australia senior currency strategist Elias Haddad said.

"Notably, the iron ore curve remains in backwardation, with market participants anticipating prices to reverse as the rising supply hits the market at a time underlying demand is weak." said Haddad. Endit