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After an 85 percent rise in 2016, the price of iron ore increased by another 7 percent in 2017 but that rally seems to be coming to an end. The price of iron ore has more than doubled from its bottom in December 2015 below $40 per ton, but in recent trade, it has declined sharply and declined to the lowest level in a month. The iron ore is the most important commodity for the Australian economy and a major source of revenues for the Australian economy. The price increases of iron ore and other industrial commodities kept the Aussie elevated against the dollar, even at a time when the other major currencies were moving down against the dollar.
As in recent days, doubts have emerged on Chinese demand, most of the commodities in the industrial space have taken a hit, and for example, the copper has declined from $2.82 per pound in February to $2.59 as of today. Many speculators are now bracing for cracks in the spectacular rallies in commodities. Iron ore future in Singapore has declined more than 10 percent from their recent peaks and has now fallen to $80 per ton.
The Australian dollar has also been feeling the heat lately. After failing to break above 0.78 area, the Aussie declined from 0.774 against the dollar to 0.75 as of yesterday. We suspect that if the iron ore rally continues to sour, the Aussie, which is currently trading at 0.753 might decline to another test of key resistance around the 0.72 area.
