Australian dollar rises for ninth day on commodities rebound

"We're more positive about commodity currencies in the medium term as they've weakened significantly since May and a lot of bad news is already in the price," said Roberto Mialich, senior Group-of-10 currency strategist at UniCredit in Milan, which told clients on October 8 to buy Canadian dollars against the US currency. "Another key factor that supported them is that the broad-based dollar momentum is no longer there, as the market cut back on fed funds rate expectations."

Commodities bounce

Despite more forecasts weak iron ore prices, the latest from BMI Resource, ore with 62 per cent content delivered to Qingdao rose 1.1 per cent on Monday to $US56.61 a dry ton, according to Metal Bulletin Ltd.

Elsewhere, benchmark copper on the London Metal Exchange closed 0.5 per cent up at $US5315 a tonne, after nearing Friday's three-week high of $US5356 in early trade. The metal rose more than 3 per cent in the previous session, swept higher in a broad metals rally triggered by news that Glencore will cut zinc output by 500,000 tonnes, or 4 per cent of global supply.

Among other base metals, lead closed 1.6 per cent higher at $US1809 a tonne and nickel rose 1.4 per cent to $US10,650. Zinc closed 0.4 per cent up at $US1843 a tonne, after rallying 2.5 per cent to $US1881.50 earlier in the session. It soared 10 per cent on Friday in its largest single-day gain in at least a decade following the Glencore announcement.

As for precious metals, gold rose to its highest level since early July as expectations that the Fed will postpone an expected US interest rate hike beyond the end of the year pressured the dollar to three-week lows against a currency basket. Spot gold reached a peak of $US1169.00 an ounce and was up 0.6 per cent at $US1163.96 an ounce at 1401 GMT, while US gold futures for December delivery were up $US8.40 an ounce at $US1164.50.

China stimulus speculation

Speculation is also mounting that China will again intervene to bolster its slowing economy with targeted stimulus, which would be another positive for the Aussie. The People's Bank of China raised its yuan fixing to the strongest since August 12, the day after a surprise yuan devaluation that triggered the currency's steepest decline in two decades.

On Monday, the yuan strengthened the most since March amid speculation Chinese lenders sold dollars to prop up the exchange rate as the International Monetary Fund prepared to take a decision on whether to include the currency in its basket of global reserves. The yuan climbed 0.35 per cent, the most since March 19, to close at a two-month high of 6.3230 a dollar in Shanghai, according to China Foreign Exchange Trade System prices. In Hong Kong's offshore market, the currency rose 0.32 per cent to 6.3180 as of 6.21pm local time, data compiled by Bloomberg show.

"The PBOC has successfully stabilised market sentiment, and the stronger fixings are supporting the yuan," said Kenix Lai, a foreign-exchange analyst at Bank of East Asia Ltd. in Hong Kong. "The central bank will keep the yuan stable in the next two or three weeks before the IMF announces its reserve-currency decision."

On Tuesday, China is expected to report exports probably fell 6 per cent in US dollar terms from a year earlier in September, following a 5.5 per cent decline in August, according to the median estimate in a Bloomberg survey. Imports may have contracted 16 per cent, leaving a trade surplus of $US48.21 billion.

Futures show a 39 per cent likelihood that the Fed will raise rates by December, down from 59 per cent a month ago. The calculations are based on the assumption that the effective fed funds rate will average 0.375 per cent after liftoff, versus the current target range of zero to 0.25 per cent.

Atlanta Fed president Dennis Lockhart reiterated on Monday that he backs a rate increase in October or December. Fed Vice Chairman Stanley Fischer, meanwhile, said on Sunday that the economy may be strong enough to merit a rate increase in 2015.

Wires

Bloomberg