Lately the Australian currency has been looking noticeably worse than its commodity rivals the Canadian and New Zealand dollars. Is there a reason for that?
Australia’s main export commodity is iron ore, not gold as some people think. Iron ore prices have fallen by 30% in the last month and a half. The main buyer is China. And it is the culprit for this situation.
In the spring of 2021, a number of Chinese steel producers have been ordered to cut production. To reduce their carbon footprint.
The Chinese state also raised export duties on certain types of steel materials. Plus it cancelled discounts on cold-rolled steel. It turns out that the fall in iron ore prices is being driven by the government itself. Less production means less demand for ore.
How long can this situation last? The profitability of producers, due to falling ore prices and rising prices for finished products, is at record levels. Naturally, it is in the interest of these companies not to reduce but to expand production.
As soon as the Chinese government eases the pressure on the industry, the demand for iron ore will immediately increase. This will lead to a new upward trend.
For now, from a technical point of view, things are very sad. And the nearest support is in the range of 0.7-0.705. If it is broken, especially on the background of the tightening of the monetary policy in the USA, an abyss awaits the Australian dollar below.
03.30 People’s Bank of China interest rate decision
08.00 UK retail sales for July
14.30 Canadian retail sales for June
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