AUD/USD slips below 0.86 on gloomy iron forecasts, despite

The recovery of the Australian dollar is fading away. So far, the pair holds above the round number of 0.86, but the failure to recapture the 0.8660 line may be telling.

One of the reasons for the recent drop comes from gloomy talk about prices of iron ore, a key Australian export.

Citigroup forecasts continued falls in the price of the metal and foresees a fall to less than $60 per metric ton. Among the reasons  are increased production from Brazil and weaker demand from China.

Also Australian Prime Minister Tony  Abbott  mentioned prices of iron as impacting the Australian budget. However, the same politician also said that the Aussie is at a “more comfortable level” after the recent decline, so perhaps another fall is not desired by Canberra.

There is a reason why AUD forecasts were downgraded by Nomura. But is everything that bad?

The National Australia Bank business confidence index, a survey of 400 companies, dropped to 4 points in  October, but the business confidence component actually jumped to 13 points, the highest since early 2008. The report cited stronger sales and employment. The conditions index has a better correlation with economic growth.

The quarterly House Price Index rose by 1.5%, well within expectations for a rise of 1.6%.

For more, see the AUDUSD forecast. Here is the chart showing the recent slide, and the lower high under 0.8660.