Falling iron ore captures headlines

15.22 AEST, Thursday 30 August 2012

Falling iron ore captures headlines

By Ben Taylor (Sales Trader, CMC Markets)

The Iron ore price has captured the attention of the market and commodity traders around the world. The recent weakness is putting a dampener on commodity plays here in Australia as well as having a constraining effect on the Australian dollar.

The falling Iron Ore price translates into falling terms of trade and therefore increasing the chances for further rate cuts by the RBA. Our dollar is taking its cue from the commodities spectrum as well as Australian bonds as they paint a weakening local picture.

Comments by China’s largest listed steel maker that Iron Ore supply may rise while demand drops has fuelled the fire and has placed huge pressure on the likes of RIO, FMG and AGO.

Today’s housing data showed that people are not jumping back into the housing market despite a 75bp reduction to cash rates since June. The Aussie dollar took a hit on the news and has continued to trade soft through the day as Iron Ore plays see continued selling.

News that Twiggy Forest bought shares in FMG yesterday and rumours that he bought more today gave some relief to the stock under siege. With further downside forecast by many in the Iron Ore space we are however seeing clients interest in shorting the stock increase.

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