Over the past 3 years, BHP and the AUD have enjoyed a very strong positive correlation of 0.81, in other words they go up and down together. No great surprise with BHP and the Australian dollar both highly leveraged to commodity prices particularly iron ore and copper, and Chinese economic activity. In periods of stronger Chinese demand and rising risk appetite, both typically outperform, while weaker commodity prices or a risk-off backdrop usually weigh on both simultaneously.
If we are correct the below chart provides two read throughs: firstly, the miners should push higher into Christmas, and secondly, if/when the $A hits our target area, it’s likely to be time to take some profit from the miners.
- We are looking for the A$ to advance towards the 75-76c area in the coming months – a great read through for the ASX miners.
MM is bullish towards the A$ around 71c
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