The Australian dollar is down under once again. It has been trending down in the last days of Q1, extending the losses from the previous week.
Weak Chinese data was blamed for the drops seen last week, but this time it can be seen more in falling commodity prices (well, that’s China related) and a surge in the US dollar, driven by different factors.
Commodities below Lehman Lows
The price of iron ore dropped to a 6 year low on Friday, according to reports in Australia. This is due to lower demand in China. Prices in Qingdao are down around 70% since the peak. For companies like Fortescue Metals, this is a real challenge. Also other metals such as steel and copper are on the back foot.
Deutsche Bank forecast iron ore prices falling below $40 as they are already below the “Lehman Low”.
Data from Australia itself has not been that awful: HIA new home sales rose 1.1% and private sector credit expanded 0.5% as expected. However, these are second tier figures.
USD domination returns
The bigger story of the last hours is the strength of the US dollar. It is the end of the month and the first quarter, and adjustments are causing movements towards the greenback.
But that’s not the only reason for USD strength: economic data coming out of the world’s No. 1 economy seemed to have stabilized after a losing streak: inflation data looks A-OK in both the official Core CPI and the Fed’s favorite Core PCE Price Index. Good news also came from new home sales and Markit’s services PMI. However, we have also seen weakness from durable goods orders.
All in all, AUD/USD is suffering, hardly clinging to 0.76. The “line in the sand” is the 0.75 line. The pair already traded at this handle, but didn’t reach 0.7500. On the topside, we find 0.7675 and 0.7715.
More: AUD/USD: H&S Confirmed; – SocGen
Here is how the downtrend looks on the chart:
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