Australian dollar to remain weak on the back of Iron ore

Financial and commodity markets analytics

The Australian dollar remained below the US77c mark today after iron ore prices remained weak overnight falling to a six year low of around $US54.50 a tonne.

At 8.25am (GMT) the Aussie dollar was trading at US76.75c up from US76.45c in yesterdays close.

Iron ore, Australia’s biggest export remains under pressure as demand dries up, especially from China as the property market grinds to a halt and overall growth in the Chinese economy remains weak.

Analysts at Macquarie Bank cut their price forecast for iron ore to $58 a metric ton delivered to China, from $65 a metric ton earlier noting the fall was needed in order for supply to pick up.

"With major projects still coming online this year in an environment where Chinese demand is relatively stagnant, existing supply will have to make way yet again. This will require an even lower iron-ore spot price," the bank noted

"We feel the [iron ore] price will have to trade below $50/t to bring about the required output cuts at producers currently benefiting from currency weakness," Macquarie said.

In a speech today to the American chamber of commerce Reserve Bank of Australia governor Glenn Stevens noted that it was inevitable the US Fed would lift interest rates in the near future, which would likely cause a stir in financial markets.

When fielding a question on the Australian dollar he noted that the currency had significantly declined, but likely had further to fall leaving some to predict that he meant even lower than his latest prediction of US75c

"This is an adjustment that's probably not yet finished would be my guess," He told the audience.


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