The BHP Billion Limited freight train loads iron ore and travels on a railroad to Port Hedland, Australia.
Ian Valdi | Bloomberg | Getty Images
SINGAPORE – The Australian dollar has risen to its highest level in more than two years on rising iron ore prices.
Late last week, it crossed 0.75 against the dollar, the highest level since 2018. The Australian currency has already risen sharply, rising nearly 8% against the dollar since the beginning of this year.
“The AUT continues to advance, trading above 0.7570 in Asia on Friday, helped by a rise in commodity prices over the past week and a rise in iron ore prices due to a number of factors including weather in Port Headland,” said Tapas, director of economics and markets at National Australia Bank in Strickland. Port Hedland is a city in Western Australia.
Iron ore prices have risen as demand from China has increased, and supply and disruption caused by the storms that have hit Australia, the world’s largest producer, have been reduced, analysts said.
Iron ore futures on China’s Dallian Commodity Exchange rose nearly 10% on Friday to an all-time high of 1,000 yuan (2 152.95) per tonne for the first time in history.
The Hayden Times of ANZ Research said on Monday that higher prices were due to China’s strong demand. According to the World Steel Association, Australia will account for 60% of the world’s total naval exports by 2019.
“There is no doubt that Chinese demand is stronger than expected amid fiscal stimulus measures. However, the threat of further supply disruptions is accelerating this,” he said.
China’s economy has largely recovered from the effects of the corona virus, fueling some of the stimulus to infrastructure. This led to an increase in the demand for iron ore, the raw material for making steel.
China buys Australia’s iron ore, a year of deteriorating relations, has shattered Australia’s many exports to Asia.
The Commonwealth Bank of Australia (CBA) said in a statement on Monday that “rising iron ore prices … further deterioration in Australia will help the AUD ignore the bad news, including China’s government relations.” It added that commodity prices were the main driver of the fair value of the Australian dollar.
Many of Australia’s exports – including wine, barley and cotton – are embroiled in the country’s geopolitical tensions with its largest trading partner, China. Bilateral relations between Canberra and Beijing were looted earlier this year following Australia’s growing call for an international inquiry into China’s handling of the corona virus.
However, the iron ore has been preserved in a growing controversy – the CBA is responsible for very few alternatives to China.
“As China accounts for 80‑85% of Australia’s iron ore exports, the steady decline in Australia’s iron ore exports has raised concerns that China may restrict imports from Australia,” said Vivek Dhar, the bank’s director of mining and energy products. .
Compared to the previous four weeks, Australia ‘s iron ore exports fell by about 6.1% in the week ended December 4 – this year is “extraordinary,” Thar said.
“While these concerns may be justified as Australia’s coal and copper concentrate exports are already facing unofficial restrictions this year, we think it’s too early to make a similar call for iron ore,” he said.
– CNBC’s Elliott Smith and Saheli Roy Chowdhury contributed to this report.