Iron ore dipped around 10% over the past five sessions and is now trading below USD70 a tonne – the lowest level in almost two months, following weakness in the steel market, as the heavy losses in the futures market in China along with some softening in China’s growth numbers finally weighed on the physical market, explains the analysis team at ANZ.
Key Quotes
“This has yet to have an impact on the AUD. On a short term basis, the correlation between the AUD and iron ore remains well below its historic average (at less than ~0.05% on a 50-day sample vs an R-squared of 0.8% over a five-year sample). The low correlation between the AUD and the price of iron ore is not uncommon, meaning that this loose relationship may last for some time.”
“Further, even if commodity prices regain their grip on the AUD, the impact of the dip in iron ore prices will still be contained. Using the beta estimated on a five-year sample, our short-term model suggests that lower iron ore prices (in the range of USD65 a tonne) should shed only around two cents from the current level.”
“While on a technical basis iron ore remains vulnerable to further near-term falls, and the peak in Chinese demand for steel will continue to keep prices under pressure; our Commodity Strategist is not bearish on the medium-term outlook and expects iron ore prices to stabilise around the mid-sixties over the medium-term.”
“As such, while moves in iron ore may drive some near-term volatility in the AUD, we don’t expect the impact to be large or persistent.”
“In addition, we think a number of other factors will continue to be supportive of the AUD at least in the near term. Domestically, the improved outlook for growth suggests the RBA may soon be joining other central banks on the ‘tightening’ bandwagon. This implies that spreads will be more supportive of the AUD as the RBA joins the Fed in tightening.”
“Finally, sentiment in financial markets continues to remain boosted by low volatility and the positive outlook for global growth – and this too is supportive. We believe these last two factors should provide a solid offset to any further marginal decline in commodity prices.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD bounces off lows, retests 1.1370
Following an early drop to the vicinity of 1.1310, EUR/USD now manages to regain pace and retargets the 1.1370-1.1380 band on the back of a tepid knee-jerk in the US Dollar, always amid growing optimism over a potential de-escalation in the US-China trade war.
GBP/USD trades slightly on the defensive in the low-1.3300s
GBP/USD remains under a mild selling pressure just above 1.3300 on Friday, despite firmer-than-expected UK Retail Sales. The pair is weighed down by a renewed buying interest in the Greenback, bolstered by fresh headlines suggesting a softening in the rhetoric surrounding the US-China trade conflict.
Gold remains offered below $3,300
Gold reversed Thursday’s rebound and slipped toward the $3,260 area per troy ounce at the end of the week in response to further improvement in the market sentiment, which was in turn underpinned by hopes of positive developments around the US-China trade crisis.
Ethereum: Accumulation addresses grab 1.11 million ETH as bullish momentum rises
Ethereum saw a 1% decline on Friday as sellers dominated exchange activity in the past 24 hours. Despite the recent selling, increased inflows into accumulation addresses and declining net taker volume show a gradual return of bullish momentum.
Week ahead: US GDP, inflation and jobs in focus amid tariff mess – BoJ meets
Barrage of US data to shed light on US economy as tariff war heats up. GDP, PCE inflation and nonfarm payrolls reports to headline the week. Bank of Japan to hold rates but may downgrade growth outlook. Eurozone and Australian CPI also on the agenda, Canadians go to the polls.
The Best brokers to trade EUR/USD
SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.