Aussie Dollar Sinks As Iron Ore Drop Fuels RBA Easing Speculation

 | May 15, 2015 01:29AM ET

Talking Points:

  • Aussie Dollar Sinks on Speculation Iron Ore Drop to Inspire RBA Rate Cuts
  • Euro Gains as Greek FinMin Stokes Hopes for Funding Deal by End of May
  • See Economic Releases Directly on Your Charts with the DailyFX News App

The Australian Dollar underperformed in overnight trade after Western Australia – the epicenter of the mining boom that insulated the country through the 2008-9 global recession – released its budget figures. The state predicted a deficit of A$2.7 billion in the 2015-16 fiscal year, up from A$1.29 billion in 2014-15, and said revenues would fall by a further 2.7 percent having slid 3.3 percent in the preceding 12 months.

Perhaps most ominously, the budget report was based on an iron ore price just $47.5/ton. That would amount to a decline of over 30 percent from current levels and a drop of nearly 21 percent from the year-to-date low set in April.

Iron ore is Australia’s leading export commodity. That means that such a large price drop is likely amount to strong headwinds for overall economic growth and may spur the RBA into additional policy easing. Indeed, the Aussie declined alongside benchmark bond yields, hinting that an eroding rates outlook was the catalyst for selling pressure.

The Euro traded higher following seemingly encouraging comments from Greek Finance Minister Yanis Varoufakis, who has been recently painted as a major roadblock to a funding accord between Athens and the so-called “institutions” (EU, IMF, ECB). Mr Varoufakis said Greece agrees on most issues with its creditors and would like a dead done by the end of this month.