Iron prices in focus for commodity currencies

Monday, Dec 28 2015

There was little movement for AUD/USD in overnight trading. Commodities try to rebound and the jump in oil prices lifted the commodity linked currencies such as Aussie in the past few sessions. Australia is closed for the extended holiday celebration. If there’s one thing Australian markets types love to talk about at present, it’s the slumping iron ore price. The price decline has got financial markets talking, with analysts seemingly trying to outdo each other by forecasting ever-lower prices.

It’s collapsing and some high-cost, high-profile miners are likely to follow suit. There’s a sense of doom saying about this; it’s going down the gurgler, taking the industry and Australia with it. There’s little doubt that the outlook for iron ore remains bleak, with a massive supply glut continuing to build as seaborne supply ramps up and global demand weakens, particularly from the world’s largest consumer, China. Many predict that it will take years for the market to find equilibrium, weighing on prices in the interim.

China’s reduced demand for iron ore amid a glut of supply has driven the market price of high-quality iron ore more than 60% lower since the beginning of 2014. Worrying signs have emerged across the market. S&P recently lowered its iron ore price forecasts and said it was monitoring eight of the world’s largest iron ore producers for possible credit downgrades, including BHP, Rio and Fortescue Metals Group. Australia’s number four producer Atlas Iron Group announced a suspension of all mining activities, prompting several mining services companies to make announcements of their own.

Aussie is currently being traded around 0.7260 area. Pair is likely to find support around 0.72 handle and resistance above 0.73 level. There will be no data releases in the rest of the session.

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