The Australian Dollar continues to trade in a sideways range in most pairs, but in the short-term at least it could get a back-draught from the weather.

AUD/USD keeps bobbing up and down within a range between 0.71 and 0.78 and the current exchange rate is 0.7541, but a recent brake on supply may generate an upside bias.

Against the Pound we see the trend is lower with GBP/AUD having bounced up to the current 1.6973 from lows seen towards 1.6999 in the previous week.

The outlook in the short-term could however favour the Aussie Dollar.

As many readers will already know a major driver of the Australian Dollar is the price of iron ore as it is Australia’s largest export.

Iron ore’s value has been falling recently; from the 90s to the 60s since the start of 2017 alone.

However analysts at NAB believe this may change in the weeks to come as a result of a supply outage from the damage caused by cyclone Debbie.

The consequent break in supply is likely to push up prices and this will probably support the Aussie in return.

The same is true for coking coal, which is heated with iron ore to make steel.

Coking coal is another major export for Australia – normally bound for China the biggest consumer of Aussie exports.

Longer-term, however, NAB remain pitilessly negative about iron ore, expecting it to eventually fall again.

“The rapid decline in spot iron ore prices – and limited upside potential on ample supplies and a weaker demand outlook (particularly over the medium-term) – means that we have revised our forecasts lower, with a flatter profile trending around US$60 a tonne across the second half of 2017 and 2018,” said NAB.

People’s Bank U-Turn

Such a move would be undeniably positive for the outlook of the Chinese economy as lower interest rates tend to stimulate economic growth.

Such a move would howeer come as quite surprise given not long ago markets were expecting the complete opposite, with PBoC set to tighten monetary policy rather than loosen it.

Furthermore, Chinese data surprised everyone of late proving once again the nation is not heading for a ‘hard landing’ in economic growth as the incredible growth rates of recent years matures.

A more positive outlook China means increased demand for Australian goods, and whilst there are still stockpiles of Australian iron ore sitting at Chinese ports, demand could soon pick up again.

So while the outlook for iron ore prices don’t point to a long-term rise in NAB’s view, the health of China’s economy also suggests the risk of a collapse is limited.

Treasury Secretary Revives Stimulus Debate

Donald Trump’s fiscal stimulus agenda has been questioned of late with markets selling the US Dollar, stocks and commodities on the view that Trump might not be able to achieve all he set out to in his election campaign.

However, we could soon see some credible action on this front.

President Donald Trump signed one executive order and two memoranda Friday, empowering U.S. Treasury Secretary Steven Mnuchin to take the first step toward tax reform and weed out onerous portions of Dodd-Frank, a law implemented in the wake of the financial crisis.

The executive order “begins the process of tax simplification” and “is the first step toward tax reform,” Trump said at the Treasury Department Friday.

In short, the reflation could be about to make a comeback and this is positive for the Australian Dollar against the likes of the Euro, Pound and other developed market currencies.

However, for AUD/USD it is neutral as the US Dollar also tends to benefit from the reflation trade.