Iron Ore Decline Additional Pressure for Aussie
Three factors worked behind Australian Dollar’s 1000 pips gain against Dollar since January. One is broad based weakness in Dollar, other two being impressive rally in iron ore, Australia’s main export product and Reserve Bank of Australia’s relatively hawkish tone with rate pause.
Last week, Last factored turned against Aussie, when RBA introduced surprise rate cut of 25 basis points and changed tone towards more aggressive stimulus. Iron is also under major decline since last week, leaving it only to weakness in Dollar to support AUD/USD.
Iron ore futures, traded in China’s Dalian commodity exchange, declined 5.1% today, making it biggest single day drop in more than a year. Today marks sixth day of consecutive decline in iron ore as Chinese regulators tried to control speculative frenzy in Steel and Iron ore. After bottoming in December, iron ore had rallied around 90%, before recent drop. In last six days it dropped around 17% and around 20% from its recent high. However price is still up a bit more than 22% YTD.
Aussie, in response to the change in two factors have declined around 500 pips from its high in April and currently trading at 0.734 against Dollar. We expect further decline in the pair at least towards 0.7 area.
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