{"id":22555,"date":"2015-05-01T18:14:03","date_gmt":"2015-05-02T01:14:03","guid":{"rendered":"http:\/\/drduru.com\/onetwentytwo\/?p=22555"},"modified":"2015-05-01T18:14:03","modified_gmt":"2015-05-02T01:14:03","slug":"bad-signs-the-australian-dollar-trips-as-iron-ore-stumbles-over-100","status":"publish","type":"post","link":"https:\/\/drduru.com\/onetwentytwo\/2015\/05\/01\/bad-signs-the-australian-dollar-trips-as-iron-ore-stumbles-over-100\/","title":{"rendered":"Bad Signs: The Australian Dollar Trips As Iron Ore Stumbles Over $100"},"content":{"rendered":"<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on May 20, 2014. <a href=\"http:\/\/seekingalpha.com\/article\/2229383-bad-signs-the-australian-dollar-trips-as-iron-ore-stumbles-over-100\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n<p>The miners of iron ore spent the last few years ramping up production capacity, and now they are ramping up production. The price of iron ore has steadily fallen in 2014 as inventories in China have steadily risen. <a href=\"http:\/\/www.bloomberg.com\/news\/2014-05-19\/iron-ore-drops-below-100-for-first-time-since-2012.html\" target=\"_blank\">Bloomberg quoted figures from Shanghai Steelhome Information Technology Co.<\/a> indicating that China is now sitting on a record 112.55M metric tons of iron ore. Iron ore producers have thrived during this period as volume has made up for price on top of very low production costs. Rio Tinto (RIO) starts losing money at a mere $44\/metric ton; BHP Billiton Limited (BHP) at $56\/tonne (data from &#8220;<a href=\"http:\/\/www.smh.com.au\/business\/mining-and-resources\/miners-in-spotlight-as-iron-ore-drops-below-us100-per-metric-tonne-20140520-38kjx.html#ixzz32F9d5DIX\" target=\"_blank\">Miners in spotlight as iron ore drops below $US100 per metric tonne<\/a>). {snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_22557\" aria-describedby=\"caption-attachment-22557\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_RIO-weekly.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_RIO-weekly.png\" alt=\"Rio Tinto has easily remained aloft even as iron prices have fallen this year\" width=\"550\" height=\"375\" class=\"size-full wp-image-22557\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_RIO-weekly.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_RIO-weekly-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-22557\" class=\"wp-caption-text\">Rio Tinto has easily remained aloft even as iron prices have fallen this year<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>{snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_22565\" aria-describedby=\"caption-attachment-22565\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDUSD.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDUSD.png\" alt=\"Upward momentum seems to be ending for the Australian dollar against the U.S. Dollar\" width=\"550\" height=\"375\" class=\"size-full wp-image-22565\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDUSD.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDUSD-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-22565\" class=\"wp-caption-text\">Upward momentum seems to be ending for the Australian dollar against the U.S. Dollar<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>{snip}<\/p>\n<p><center><br \/>\n<figure id=\"attachment_22564\" aria-describedby=\"caption-attachment-22564\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDJPY.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDJPY.png\" alt=\"The beginning of a breakdown for the Australian dollar against the Japanese yen\" width=\"550\" height=\"375\" class=\"size-full wp-image-22564\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDJPY.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140520_AUDJPY-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-22564\" class=\"wp-caption-text\">The beginning of a breakdown for the Australian dollar against the Japanese yen<\/figcaption><\/figure><br \/>\n<\/center><\/p>\n<p>The Australian dollar is important in this context as a barometer for the market&#8217;s general sentiment toward economic conditions in China. {snip}<\/p>\n<p>With stock market volatility trading at the bottom of its range, conditions are ripe for a sudden pullback. Since the beginning of 2013, volatility has tended to spend very little time at current levels. In other words, there is little tolerance for something going wrong &#8211; a continued drop in iron ore prices and a sliding Australia represent &#8220;something going wrong&#8221; in the current context.<\/p>\n<p><center><br \/>\n<figure id=\"attachment_22561\" aria-describedby=\"caption-attachment-22561\" style=\"width: 540px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_VIX.png\"><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_VIX.png\" alt=\"Volatility is trading at levels that typically do not last long\" width=\"550\" height=\"375\" class=\"size-full wp-image-22561\" srcset=\"https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_VIX.png 550w, https:\/\/drduru.com\/onetwentytwo\/wp-content\/uploads\/2014\/05\/140519_VIX-300x204.png 300w\" sizes=\"auto, (max-width: 550px) 100vw, 550px\" \/><\/a><figcaption id=\"caption-attachment-22561\" class=\"wp-caption-text\">Volatility is trading at levels that typically do not last long<\/figcaption><\/figure><br \/>\n<strong>Source for charts: <a href=\"http:\/\/www.freestockcharts.com\/\" target=\"_blank\">FreeStockCharts.com<\/a><\/strong><br \/>\n<\/center><\/p>\n<p>I believe the following commentary from <a href=\"http:\/\/www.bankofengland.co.uk\/\/publications\/Pages\/inflationreport\/2014\/ir1402.aspx\" target=\"_blank\">the opening remarks of the Bank of England&#8217;s Governor Mark Carney in last week&#8217;s Inflation Report<\/a> should prove prescient:<\/p>\n<blockquote><p>&#8220;While risks around the euro area are now two-sided around a modest growth rate, there are downside risks from the consequences of the rapid growth of shadow banking in China. More broadly the MPC is alert to vulnerabilities from a reassessment of risk in financial markets, perhaps prompted by geopolitical developments or uncertainties about the normalisation of monetary policy. Despite a more complex global environment, implied volatilities in many markets are well below their long-term averages. <\/p>\n<p>Heading back to normal will likely be accompanied by more normal, that is higher, levels of volatility.&#8221;<\/p><\/blockquote>\n<p>Be careful out there!<\/p>\n<p><strong>(This is an excerpt from an article I originally published on Seeking Alpha on May 20, 2014. <a href=\"http:\/\/seekingalpha.com\/article\/2229383-bad-signs-the-australian-dollar-trips-as-iron-ore-stumbles-over-100\" target=\"_blank\">Click here to read the entire piece<\/a>.)<\/strong><\/p>\n<p>Full disclosure: net short the Australian dollar<\/p>\n","protected":false},"excerpt":{"rendered":"<p>(This is an excerpt from an article I originally published on Seeking Alpha on May 20, 2014. Click here to read the entire piece.) The miners of iron ore spent the last few years ramping up production capacity, and now they are ramping up production. The price of iron ore has steadily fallen in 2014 &#8230; <a title=\"Bad Signs: The Australian Dollar Trips As Iron Ore Stumbles Over $100\" class=\"read-more\" href=\"https:\/\/drduru.com\/onetwentytwo\/2015\/05\/01\/bad-signs-the-australian-dollar-trips-as-iron-ore-stumbles-over-100\/\">Read more<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[386,199],"tags":[310,676,692,847],"class_list":["post-22555","post","type-post","status-publish","format-standard","hentry","category-australia","category-commodities","tag-australian-dollar","tag-iron-ore","tag-rio","tag-rio-tinto-plc"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Bad Signs: The Australian Dollar Trips As Iron Ore Stumbles Over $100 - ONE-TWENTY TWO: Trading Financial Markets<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/drduru.com\/onetwentytwo\/2015\/05\/01\/bad-signs-the-australian-dollar-trips-as-iron-ore-stumbles-over-100\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Bad Signs: The Australian Dollar Trips As Iron Ore Stumbles Over $100 - ONE-TWENTY TWO: Trading Financial Markets\" \/>\n<meta property=\"og:description\" content=\"(This is an excerpt from an article I originally published on Seeking Alpha on May 20, 2014. 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Click here to read the entire piece.) The miners of iron ore spent the last few years ramping up production capacity, and now they are ramping up production. The price of iron ore has steadily fallen in 2014 ... 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