The Australian Dollar was on a US 78 cents big figure for all but a few minutes of last week, moving steadily higher to reach a best level on Friday of 0.7874; its highest since October 20th. Overall, the AUD ended the week higher against the USD, GBP and EUR but down against the NZD and CAD.
There were two main – but interlinked - drivers of the Aussie Dollar: commodity prices and the Chinese economy. The Bloomberg Commodity Index, which tracks returns on 22 raw materials, posted an unprecedented 14 days of gains to Wednesday, closing at the highest since February last year. On Thursday it was flat and on Friday it finally closed lower; breaking a remarkable streak which had not seen a down day since the Fed hikes rates in December.
The Australian Government’s Department of Industry, Innovation and Science said in a report published today that it expects iron ore prices to average $51.50 a tonne this year, down 20% from 2017, because of rising global supply and moderating demand from top importer China as its steel sector shrinks. The forecast price decline will continue into 2019, when the steelmaking raw material will average only $49 a tonne, the Department said. Today, the price of iron ore is around $75 per tonne and it hasn’t been below the $52 forecast since June 2017. The report warned, “The iron ore price is expected to experience some ongoing volatility in early 2018, as the market responds to uncertainty regarding the impact of winter production restrictions on iron ore demand.”
Private sector forecasts for iron ore have been mostly higher: UBS and Citibank, for example, both see prices averaging around $64 per tonne for 2017 and the official numbers have weighed down on the Australian Dollar overnight. It opens in North America this morning at USD0.7835 with AUD/CAD at 0.9720 and AUD/NZD1.0915.