AUD/USD drops, poised for first weekly loss in four weeks as iron ore prices fall

Australian dollar lost ground against its US counterpart on trading Friday and was set to register its first weekly drop in four weeks, after prices of iron ore, Australias largest export, fell.

AUD/USD touched a session low at 0.8982 at 6:30 GMT, after which consolidation followed at 0.8980, losing 0.18% for the day. The pair was down 0.50% for the whole week, or the first weekly loss since the week ended on January 24th. Support was likely to be received at February 20th low, 0.8937, while resistance was to be encountered at February 20th high, 0.9020.

Prices of iron ore declined 1.2% in two days to reach 122.90 USD per metric ton on Thursday, data compiled by The Steel Index Ltd. revealed. Total inventory of iron ore at ports in China, monitored by Shanghai Steelhome Information Technology Co., rose to 100.3 million tons during the week ended on February 14th, or the highest level since March 2010. Record-high inventories of iron ore in China may have an impact on demand at the same time Australia expands supply of this material, which would pressure prices, according to Paul Lambert, head of currency at Insight Investment Management Ltd. in London.

“The result of diminished demand and continued strong supply will be a resumption of the downtrend of commodity prices,” Lambert said, cited by Bloomberg News. “This will worsen Australia’s terms of trade. Given that we now know that terms of trade dominates the RBA’s currency model, they would be hoping and expecting to see a lower Australian dollar.”

Meanwhile, the minutes of Federal Reserve Bank’s policy meeting on January 28th-29th showed that several policy makers said in “the absence of an appreciable change in the economic outlook, there should be a clear presumption in favor” of continuing to pare back the central bank’s monthly monetary stimulus by 10 billion USD at each meeting.

As the rate of unemployment decreases at a faster than expected pace, even while other labor-market indicators signal weakness, bank’s policy makers agreed that it would “soon be appropriate” to revise their guidance about the time horizon of record-low borrowing costs.

The need to change the unemployment threshold has been underscored, but however, policy makers expressed different opinions about how to clarify their guidance. Some officials supported the idea of keeping some form of quantitative guidance, “while others preferred a qualitative approach that would provide additional information regarding the factors that would guide the Committee’s policy decision,” the Fed minutes revealed.

Federal Reserve President for St. Louis, James Bullard, and Fed President for Dallas, Richard Fisher are expected to take a statement later in the day, while Fed Chair Janet Yellen will attend a meeting of G-20 finance ministers and central bankers in Sydney.

Yesterday the Bureau of Labor Statistics in the United States said in a report that the index of consumer prices rose 0.1% in January compared to a month ago, in line with analysts’ estimates and after the index gained 0.2% in December. The annualized consumer price inflation came in at 1.6% last month, matching the median experts’ forecast and following a 1.5% increase in December.

Core consumer prices, which exclude the volatile food and fuel categories, also advanced 0.1% in January compared to the preceding month, while the annualized core consumer price inflation reached 1.6% in January.

Additionally, the number of initial jobless claims in the country fell by 3 000 to 336 000 during the week ended on February 15th, while preliminary estimates pointed a decrease to 335 000 claims.

Elsewhere, the Aussie was steady against the euro, with EUR/AUD cross up 0.06% on a daily basis to trade at 1.5245 at 7:58 GMT. AUD/NZD was dipping a mere 0.02% to trade at 1.0843 at 7:59 GMT. Earlier on Friday the pair touched a session high at 1.0855.