The Australian dollar has broken down through the US86.00 cent market today after yesterdays Fed minutes meeting and a further slump in the Iron ore price. Today the currency is s trading at US85.86 cents 5.46pm(AEDT) down from US86.17 cents yesterday.
The meeting minutes portrayed a more-hawkish-than-expected FOMC statement after the October meeting and board members voted to end the banks quantitive easing program as most analysts had expected. Now the main focus is on the outlook for Inflation and when the Fed plans to start lifting interest rates.
A majority of Fed members still predict that inflation, despite a recent downturn, will rebound and push back up towards the central bank’s 2% target rate and eventually reach that goal in 2015.
Another Important Indicator for the Fed on the strength of the economy is the unemployment rate which is sitting at a six year low of 5.8% confirming the their position that labor market is steaming ahead and moving toward its goal of an unemployment rate range of 5.2%-5.6%.
Putting more pressure on the Aussie currency was a further fall in the Iron ore price overnight, which hit a fresh five-year low at $US70 a tonne.
One Analyst predicts that the recent fall may be connected to China’s property market, which some say is beginning to unravel and may push the Iron ore price below US$60 a tonne next year.
China’s residential property market accounts for around 24 per cent of steel consumption in the world’s second largest economy.
“The key issue right now with regards to the Chinese property market is that supply continues to rise, which on face value would be positive for steel consumption and the iron ore price,” Deltec chief investment officer Atul Lele said. “But it’s coming in an environment where demand for property is actually remaining quite weak.”
“We believe it represents the biggest risk to the Chinese and global economy,” Mr Lele said.
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