The Australian Dollar US Dollar (AUD USD) exchange rate tumbled close to a five-month low this morning as markets fear that commodity markets will continue collapsing following a rout in oil prices.
Australian Dollar US Dollar (AUD USD) Slumps as Iron Ore Nosedives
The Australian Dollar (AUD) continued to downtrend overnight on Thursday as the spot price for iron ore tumbled.
Following a disastrous day for Australia’s largest export on Chinese future markets, in which trade for iron ore was suspended after it plummeted 7% in a single session, the spot prices for benchmark 62% fines fell to $65.20 a tonne.
With iron ore witnessing its worst single day fall in five months, the commodity has now reached its lowest level since early December and is a long way from the multi-year high of $94.86 a tonne it struck in February.
The fall has been attributed to growing concerns of oversupply in China amid weakening construction and infrastructure demand, with anxiety that China’s economy could be showing signs of slowing, with the recent slump in oil adding further fuel to concerns of a slowdown in commodity markets.
Analysts are currently forecasting that iron ore prices could fall as much as 20% further over the coming weeks as they predict that the commodity will settle at around $50 a tonne in the near-future.
US Dollar (USD) Slides as US Factories Slow
The US Dollar was forced to cede some ground this morning however as investors reflected on the recent downturn in US economic data.
The US manufacturing sector remains a major concern, with US Factory Orders slowing from 1.2% to 0.2% in March – the lowest levels since November.
This follows a disappointing Manufacturing PMI earlier in the week that suggests that this slowdown is likely to continue into the second quarter as activity tumbled from 57.2 to 54.8 in April, falling even further than the 0.7 drop analysts had predicted.
After holding office for over 100 days, investors are becoming increasingly wary of Donald Trump’s ability to deliver on the growth that he had promised during his campaign, with his goal of drastically increasing infrastructure spending to kick-start US industrial and employment growth still looking a long way off.
AUD USD Forecast: US Employment Data to Drive US Dollar Lower?
The release of US employment data will likely see the AUD USD exchange rate begin to rally later this afternoon if figures show that the jobless rate rose from 4.5% to 4.6% in April as predicted.
Despite US Non Farm Payrolls being forecast to rise from 98,000 to 185,000 last month, a larger participation rate is expected to cause the unemployment rate to climb, potentially sending the US Dollar lower.
Meanwhile the next major data release for Australia will be the latest Business Confidence figures from NAB, with the ‘Aussie’ likely to fall if business sentiment shows any sign of weakening in April.