AUD Exchange Rate Forecast: Iron Ore Slips, GBP Strengthens Despite Brexit

31 March 2017 by News Desk   |   SHARE  

The Australian dollar could be facing a downturn on account of global iron ore prices; meanwhile, the pound is starting to climb against other majors, say industry experts FC Exchange.

AUD

The Australian dollar softened against major counterpart the US dollar (AUD/USD) toward the close of this week following stronger-than-forecast US data. In addition, Australia’s most lucrative commodity, iron ore, found its value falling on account of China’s domestic iron ore production. Australia has strong trade links with China and sends a vast amount of its iron ore there. However, it’s thought that Chinese ports are harbouring enough iron ore to build 13,000 Eiffel Towers and are running out of storage space.

China increased its domestic output of the commodity last year as prices rose, but stockpiles are now glutting, creating the most significant level of stock in over a decade—a development that will cause the commodity value to weaken.

Vice Chairman of the China Iron and Steel Association Li Xinchuang said that the iron ore level, including that at Chinese steel mills is ‘too much stock. It will be very dangerous for the price. That’s what’s very worrying about it.’

Li also stated: ‘It is predicted that world iron ore supply will increase by about 50 million tonnes. [Combined] with reduction of Chinese steel industry, it is inevitable to see a downturn of iron ore demand, which cannot be compensated by other countries or regions over a short-term. Thus, oversupply will still be the condition of the world iron ore market.’

If the price of iron ore weakens further, the Australian dollar is likely to track its movements lower.

GBP

On reflection, the pound has had a good quarter and is on target to make gains against the US dollar (GBP/USD). However, the quarters ahead may be faced with political disruptions for sterling, with a host of factors rearing their heads.

During Friday’s European session Nicola Sturgeon sent a letter to Theresa May demanding a second Scottish independence referendum. This isn’t good timing for the British PM who’s trying to navigate the UK out of the EU successfully. Now Article 50 has been officially triggered, negotiations can begin. However, it must be noted that the EU has said that negotiations can’t take place until the UK has paid its divorce bill, something that’s rumoured to reside in the region of €60 billion. As Article 50 was triggered, many industry experts feared a slip in sterling, but the UK currency remained resilient.

USD

This week we saw the US economy print some favourable data, but the buck failed to climb significantly against a host of other majors. The US consumer confidence number jumped in March

to a healthy 125.6, following the previous month’s 116.1. Economists had expected the March number to come in at 114.0.

Fourth quarter US gross domestic product (GDP) data also came in favourably, reaching 2.1% in Q4, rather than the 2.0% expected. US dollar weakness is largely attributed to Donald Trump’s presidency problems; the new president has stumbled on one of his major campaign promises to remove Obamacare.

EUR

Spanish and German inflation figures were both underwhelming this week and Thursday saw the euro sink lower against both sterling and the greenback in response. The euro was able to gain some ground earlier in the month following a European Central Bank (ECB) press conference by central bank chief, Mario Draghi. Markets viewed the statements as a nod that interest rates would be increasing soon as inflation stepped up. Following this, however, the highly anticipated Eurozone consumer price index eased in March on the year, falling from 2.0% to 1.5%, giving Draghi some breathing space in terms of policy adjustments. It was expected the ECB would be careful with regards to their next policy statement in order to manage market expectations – falling inflation will make this much easier.

Disclaimer: This economic update is provided by FC Exchange a Global Reach Group Company, industry leaders in foreign exchange. Authorised affiliates are permitted to reuse content.

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