$A drops below US75¢ as iron ore enters bear market

8 Apr 2017

The currency’s year-to-date appreciation now stands at to 4.1 per cent. It peaked most recently at US77.31¢ on March 20. Glenn Hunt

The Australian dollar has fallen to near a three-month low, below US75¢, in the wake of a plunge in the price of iron ore and a rebound in its US counterpart.

The Aussie was trading at US74.92¢ at about 8am AEST on Saturday. The currency last traded with a US74¢ handle in mid January. The currency’s year-to-date appreciation now stands at to 4.1 per cent. It peaked most recently at US77.31¢ on March 20.

The spot price of iron ore plunged 6.8 per cent to $US75.45 a tonne on Friday, according to Metal Bulletin, triggered by a similar plunge in both Chinese iron ore and steel futures. The spot price now is 20.5 per cent lower than its February 21 close of $US94.86; the simplified measure of the start of a bear market.

Sentiment in the local currency also was hurt by an advance in the US dollar. The dollar index rose to a three-week peak of 101.26 and was last up 0.5 per cent at 101.16.

The greenback touched session highs against the Japanese yen following comments by New York Fed boss William Dudley, and was last up 0.3 per cent at 111.16. The US dollar hit a four-week high versus the euro, which fell 0.5 per cent to $US1.0587.

Dudley, an advocate of low interest rates, said on Friday that shrinking the Fed’s $US4.5 trillion bond portfolio would prompt only a “little pause” in the Fed’s rate hike plans, providing relief to US dollar bulls banking on more than one rate increase this year.

The Fed policymaker added that interest rates are still a primary tool for monetary policy, and not a “gradual” balance sheet reduction.

“Dudley’s comments added a tailwind for the dollar,” said Joe Manimbo, senior market analyst at Western Union Business in Washington. “He has softened any suggestion that any reduction in balance sheet would cause a pause in interest rate hikes in a meaningful way.”

The New York Fed official had said in a recent interview that trimming the balance sheet was a substitute for rate hikes, which could prompt the Fed to “pause” raising rates at that time.

Investors still expect two more rate increases in 2017, analysts said, although the probability of a June hike has declined to 61 per cent after the March US jobs report from more than 70 per cent late on Thursday.

While the New Zealand dollar also fell against the greenback—0.4 per cent to US69.41¢—it fared better with its Tasman rival. The Aussie slipped 0.3 per cent to $NZ1.0799.

Read more: http://www.afr.com/markets/currencies/a-drops-below-us75-as-iron-ore-enters-bear-market-20170407-gvgm3q#ixzz4e1dg8bZr