Australian dollar tumbles along with iron ore, recession possible

Financial and commodity markets analytics

The Australian dollar is sharply lower in today’s trading as iron ore hit a fresh 6 year low leaving some analysts to predict the local economy will enter a recession in 2016

At 10.12am (GMT) the Aussie dollar was trading at US76.82c down from US77.50c at close of trade on Friday.

A slowdown in China’s property market is creating a headache for Australia’s biggest commodity slumping on Friday to around $US53.00 a tonne, more than 60% down from its 2014 high of $US135.27 a tonne.

With weak demand out of China, things are not looking good for the metal with some predicting like ANZ senior commodity analyst Daniel Hynes that we may not have seen the bottom yet,

"It's obviously under a fair bit of pressure with the Chinese steel market still weakening," he said

"To be honest, there aren't any indicators to suggest we've come getting close to the end of that trend." He also added.

Some analysts like to Vimal Gor, BT's Sydney-based head of fixed income predict that Australia has a 50% chance of entering a recession and the RBA will cut rates by 50 basis points to 1.75% leaving the door open to further cuts if necessary.

Australia has been able to avoid a recession for over 20 years due to the mining boom, but with that over the country may be vulnerable,

"I could easily build a scenario where the RBA cuts rates sub 1 per cent," Gor said in an interview on Friday. "There's a decent chance of recession in Australia. We haven't had one for a long time."

"I see us either stopping at 1.75 per cent or stopping at sub 1 per cent," he said. "If it's bad enough to take us below 1.75 per cent, it's bad enough to take us a long way." He added.


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