Iron Ore plunged below the psychological level of $50 which should add even further pressure on RBA to lower interest rate or even consider intervening to drive the Aussie down.
The Australian economy and Dollar took another blow overnight as the price of Iron Ore plummeted below $50. The bearish trend of Iron Ore, whilst not exactly a new one, has seen a noticeable acceleration at these lows (purple arrow) to suggest the trend is reaching fever pitch.
– Shed 11% in 6 day losing streak
– Is down from $185 in 2011
– At its lowest since records began in 2008
With Iron Ore at such low levels this will continue to create a drag on export prices for local miners, in turn, adding extra pressure on RBA cut interest rates next week to help weaken the Aussie Dollar. The trouble here though is if they do cut rates, they are likely to push housing prices up further form their current all-time highs.
With RBA facing a double-edged sword between accelerating housing and falling Iron Ore prices then the blunt use of interest rate cuts will not likely have the desired effect of dealing with both issues. This is where stronger Macro-Prudential tools should be implemented to deal with housing in isolation and RBA finally step in to intervene with their own currency to drive it lower, instead of relying on lower interest rates and half-hearted macro measures (which have so far had little, if any, effect to slow the housing market down).
The Australian Dollar revisited the 76c and saw an intraday low of 3% but has since managed to held above the multi-year lows of 0.7559, thanks to soft Manufacturing PMI data from US overnight.
Traders will now focus on Nonfarm payroll data over the Easter Weekend which could provide extra volatility, if the numbers are far away enough from consensus, due to lower liquidity.