AUD/USD intermarket: what is iron ore's relationship with the Aussie currently?

Currently, AUD/USD is trading at 0.7544, down -0.34% on the day, having posted a daily high at 0.7579 and low at 0.7533.

AUD/USD remains consolidated after the recent supply in the Aussie with markets falling out of love with the high beta commodity unit. Commodities are a sure driver for the Aussie at the moment. Markets, especially the commodity bloc and Aussie traders, are paying a particular interest in the price of iron ore. On an interbank analysis, the Aussie hit a road block around 0.7720 and crashed from 0.7749 to current levels at the same time iron ore dropped from $89.40 down to lows of $78.44.

Iron ore basics

Iron Ore (Fe) is mined in around 50 countries worldwide and used to make steel (buildings, cars, white goods etc.). Global economic growth has bene on thin ice since the financial crash. For iron ore, economic growth is the primary factor that drives its supply and demand with the need for steel in construction increases which drives the price up. All eyes have been on China as the world’s largest consumer of metals. China's growth has been a big driver for the price of iron ore recently, so much so, that the spot price can almost be considered a proxy for China’s economic health.  

Australia is world's second-biggest producer of iron ore

Iron ore prices soared 80 percent in 2016 on the back of China's growing economy that helped to sustain steel output and a need for iron ore. Shipments to China from Australia's Port Hedland terminal has been known to amount to as much as 37.4 million tonnes in a single month (Dec 2016 record). Australia is the world's second-largest producer of iron ore, producing circa 660m tons per year while China produces 1500 tonnes per year. So long as the growth in China continues, demand should remain on the increase supporting exports from Australia's largest export market, that is Iron Ore. China is targeting growth of 6.5% for 2017, albeit down slightly from last year's actual 6.7% rate and a 25-year low for the industrial powerhouse, relatively speaking, it is a stable economy demand for iron ore will continue to support the Aussie.  Also, elsewhere, investors are concerned about the US economy and Trump's probability of being able to push through his sweeping tax cut agenda and other policies without objections from the house. This could continue to weigh on the US dollar and slow down the current slide in both commodities and the Australian dollar.

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AUD/USD levels

Technically, however, AUD/USD's near term outlook remains negative. The currency pair has accelerated lower to break below the 200-day ema at 0.7538. "The intraday Elliott wave counts are negative and indicating that rallies will struggle 0.7575/90," argued analysts at Commerzbank, explained that they have 0.7492 March low in sight. "This is the breakdown point to the 2016-2017 uptrend at 0.7260. The market will stay offered below the 0.7627 20 day moving averages."