A large sell off in Iron Ore on Friday then continuing on Monday has dragged the Australian Dollar US Dollar (AUD/USD) exchange rate down below 0.78c to be trading at 0.7726 at 12:00pm on Monday.
Iron ore has plunged to a six year low, and has been on a downtrend for over a year now and with oil and copper prices also falling at the same time, the AUD has lost some strength against the USD.
A decision in China over the weekend from the Chinese leadership to redouble their efforts to deal with a chronic oversupply in the steel market and a report by the South China Morning post that China “plans to slash steel-making capacity by 80 million tonnes.” has, unsurprisingly had an effect on the price of Iron Ore.
In attempts to restructure its bloated steel sector, the mainland will publish a 2015-2017 action plan before June, Luo Tiejun, of the raw materials department at the Ministry of Industry and Information Technology, said.
“The combination of oversupply and the weakening building sector in China, Australia’s largest trading partner, is leaning on the Australian dollar,” OANDA Asia Pacific senior trader Stephen Innes said.
The AUD was also hit by the announcement that Chevron (The US energy giant) sold off half it’s stake in Caltex Australia, which plunged the Caltex share price by over 9% on Monday.
Mr Innes said it was the last of the multinational oil giants to pull its investment out of Australia’s oil and gas industry, after Royal Dutch Shell sold its Australian petrol and refinery operations last year.
“Naturally, there are some currency implications on these types of deals to be expected, and currency traders will likely start speculating how much of the impact of this news will hit the forex market,” he said.
Monday evening has seen some important economic data released from the US, with Personal Income increasing from 0.3% in January to 0.4% in February and Personal Spending down from 0.2% to 0.1%. Following these results was the release of the USD Personal Consumption Expenditure which came in at 1.4% which was above the forecast of 1.3%.
To add further pressure to the AUD, the latest ASX rate indicator reported that as of Monday 30th March, market expectations are showing that 68% of market participants are now expecting a rate cut in April.
The AUD/USD exchange rate was trading at 76.41 at 07:00am AEST on Tuesday morning.
Looking ahead to Tuesday and some low key domestic data will be released at 10:00am which includes, HIA New Home Sales which gives a snapshot of the strength of the Australian housing market. Home sales bounced back in February with a gain to 1.8% following the previous months figure. 30 minutes after the home sales data we have AUD Private Sector Credit results, which are forecast to drop slightly from 0.6% to 0.5%, (Increased credit levels usually translate into increased spending by individuals and businesses, which is a key indicator for economic growth).
Attention on Tuesday evening will then turn to Germany with the German Retails Sales and Unemployment Change figures will be released. The Retail Sales are forecast to drop from 5.3% to 3.4% and the Unemployment Change for March to drop to 12K from 20K in February.
After this, the Euro-Zone Unemployment rate will be released, which is expected to remain at 11.2% along with the CPI estimate for March which is forecast to drop from 0.3% to 0.1%
The AUD/EUR exchange rate was trading at 70.66 on Tuesday morning at 07:00am AEST.