30 Mar 2015
Weaker commodities pressuring RBA for a rate cut – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, explains that with iron ore prices hitting a 6-year low last week and coal production set to fall in Australia, the RBA might be pressured into cutting rates again, which favours a lower AUD/USD rate at 0.70 on a 12-m view.
Key Quotes
“New house prices in China have now fallen for six consecutive months. Property reportedly accounts for almost a quarter of steel use in China and iron ore along with coal are Australia’s largest export products.”
“Last week iron ore prices hit a 6 year low with prices at China’s Quigdao port dropping 4% on Friday alone. Measured from their 2014 high, iron ore prices have collapsed by 60%.”
“While speculation of a continued glut in iron ore is widespread, Glencore has announced it will curb coal production in Australia by around 15% this year in response to weak coal prices.”
“Job losses and/or weak production margins in the Australian mining sector are likely to feed through into weaker incomes, confidence and a rise in job insecurity this year.”
“Against this backdrop there is plenty of pressure for the RBA to press forward with another rate cut.”
“On our view that the RBA will cut rates again this year we expect the AUD to weaken vs. the USD. While the Fed may be in no hurry to hike, we expect AUD/USD to grind lower towards the 0.70 area on a 12 mth view.”
Key Quotes
“New house prices in China have now fallen for six consecutive months. Property reportedly accounts for almost a quarter of steel use in China and iron ore along with coal are Australia’s largest export products.”
“Last week iron ore prices hit a 6 year low with prices at China’s Quigdao port dropping 4% on Friday alone. Measured from their 2014 high, iron ore prices have collapsed by 60%.”
“While speculation of a continued glut in iron ore is widespread, Glencore has announced it will curb coal production in Australia by around 15% this year in response to weak coal prices.”
“Job losses and/or weak production margins in the Australian mining sector are likely to feed through into weaker incomes, confidence and a rise in job insecurity this year.”
“Against this backdrop there is plenty of pressure for the RBA to press forward with another rate cut.”
“On our view that the RBA will cut rates again this year we expect the AUD to weaken vs. the USD. While the Fed may be in no hurry to hike, we expect AUD/USD to grind lower towards the 0.70 area on a 12 mth view.”