Sharp fall in Chinese Iron Ore Contracts Drives AUD/EUR Lower
The Australian Dollar Euro (AUD/EUR) exchange rate retreated at the start of this week’s session as markets were unsettled by a sharp fall in Chinese iron ore futures.
At the time of writing AUD/EUR is trading around 0.4% lower and had fallen to its lowest levels since October 2015.
Australian Dollar (AUD) Tumbles on Downturn in Iron Ore Futures
The Australian Dollar has started this week’s session on the back foot against the Euro and the majority of its other peers as a sharp drop in commodity futures weighed heavily on market sentiment.
Iron ore futures fell as low as 4.3% at one point during Monday’s session, close to point at which trading is suspended.
Analysts suggest that the drop is likely down to record high stock levels at Chinese ports as well as concerns around further limits on Chinese steel production.
Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank said;
‘Iron ore prices [are falling] on physical demand concerns after Chinese policymakers told steel mills in the Wu’an area of the Hebei province to halt production until March 31.’
Dhar also warns that a decline in construction activity this year could also be having a negative impact on contracts;
‘Cold weather has stalled China’s construction season this year, but we think construction could fundamentally weaken in 2018 on the back of a weaker property sector.’
This fall in futures will also likely translate into heavy losses in benchmark iron ore prices, which as of start of trade on Monday were already at their lowest levels since November.
Meanwhile the Euro looks content to just take advantage of the ‘Aussie’s weakness, with the latest Eurozone trade figures appearing to have little impact on Monday.
AUD/EUR Forecast: Slide in German Economic Sentiment to Weaken Euro?
Looking ahead the AUD/EUR exchange rate may be allowed to rebound during the European session on Tuesday as Germany publishes its latest economic sentiment index.
Economists forecast that the index will have tumbled from 17.8 to 13.1 in March, possibly reflecting on concerns that momentum in the Eurozone is beginning to slow.
Meanwhile the focus will be on Australia’s latest labour report for AUD investors this week, with Thursday’s figures likely to punish the ‘Aussie’ if wage growth shows little sign of improvement in February.