The Aussie is booming amid China trade spat

Judging by the sounds emerging from embassies and trade ministries, you’d think one of China’s most important economic relationships was on the rocks. But currency markets are predicting it’s on the verge of another boom.
The Australian dollar hit its highest level in more than two years, capping a 29% rally from its nadir in late March. The moves come after data showed the country emerging from recession in the September quarter. That’s a remarkable contrast to the gloomy political picture, where Australia and its biggest trading partner, China, have been locked in a deepening cycle of conflict for months.
After China unofficially put imports of half-a-dozen categories of Australian products on hold last month, already-tense relations have worsened. More than 50 coal ships have been waiting a month or more off Chinese ports to deliver their cargo. A diplomat in Beijing this week tweeted a fake photograph of an Australian soldier holding a knife to the throat of an Afghan child, a reference to an ongoing investigation of war crimes allegedly committed by the country’s special forces. Tencent Ltd’s WeChat, which has about 690,000 users in Australia, blocked a Chinese-language message responding to the controversy from Prime Minister Scott Morrison.
Forget the sturm und drang. Australia’s exports to China, after breaking previous records in each of the past five years, will repeat the trick again in 2021. It’s not hard to see why when you look at the numbers.
More than half of Australia’s total exports to China consist of just one product: iron ore. That trade has been on a tear over the past year, with Beijing employing its usual strategy of industrial stimulus to grow its way out of a coronavirus-induced downturn. Brazil, the second-biggest exporter after Australia, has been hit hard by the pandemic, and thus hasn’t been able to increase shipments enough to keep up with demand. Prices for Singapore-traded ore hit $131.26 a metric ton Wednesday, the highest level in nearly seven years.
There’s little to suggest this trade will recede over the coming months. While the median analyst forecast has ore averaging $92 a ton in 2021, compared with $102 this year, forward pricing implies a figure of $116.64. The pace of revenue growth in China’s steel-intensive engineering and construction sector isn’t set to peak until the first half of next year, according to Fitch Ratings. Even after that, expansion will continue.
—Bloomberg