China released a few economic figures during the weekend and the picture isn’t too great: industrial production grew by 6.9% year over year in August. This is significantly weaker than 8.8% expected and the worst read since the dark days of the financial crisis in 2008.
This could further weigh on the Australian dollar, which is very vulnerable and could lose the 0.90 line.
Other figures also fell short: Fixed Asset Investment rose by 16.5%, weaker than 16.95 expected, and retail sales by 11.9%, below 12.1% predicted. While such numbers are extraordinarily strong for developed economies, expectations are totally different for China, which wishes to grow at a rate of around 7.5%.
China is Australia’s main trade partner and a slowdown in production in the world’s No. 2 economy could curb its demand for Australian metals, most importantly iron ore.
Iron ore lows and Aussie fall
The price of iron ore is around $83 and has been under $100 for nearly 4 months. Headlines like “the end of the iron age” have already circled around. This data could push iron prices further down.
The Australian dollar has initially shown resilience in the wake of the dollar surge. However, its fate changed in the second week of September, when it finally broke down and reached the 0.90 handle. The fall was only temporarily stopped by the superb employment data.
The renewed fall after the data was digested shows how weak the Aussie is.
Adding the weak Chinese data, the low price of iron ore and the recent weakness in the Aussie, a drop under 0.90 when trading resumes cannot be ruled out.
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