Iron ore rises to benefit Australian dollar

Iron ore, which is the key ingredient in steel production, has found new fuel in Donald Trump’s victory, who has promised to rebuild the American infrastructure. With Donald Trump’s victory, traders are now betting on a significant increase in demand for steel from world’s largest economy. Speculations of a recovery in China have also gone rampant this year. Iron ore futures slumped 12.5 percent but only to backtrack the loss with two back to back daily gains. Today price is up 8 percent. Prices were up 3.3 percent on Tuesday. The price is up almost 100 percent since it bottomed below $40 per ton last December. However, the price is less than half of $187 per ton, it averaged in February 2011.

As the prices continue to recover, it is likely to act as a major bullish force for the Australian dollar. Australia is the second largest producer of Iron ore in the world, only behind China. It has the largest reserve in the world. In 2015, Australia produced 824 million metric tons of the metal. More importantly, 90% of Australia’s iron ore mines have a reputation for producing consistently high concentrations of around 60%.

The Australian dollar is currently trading at 0.742 against the US dollar and we expect the Aussie to rise as much as 0.81. However, the recent strength of the dollar might delay in reaching the price target.