AUD/JPY – Tumbling Iron Ore Price Weighing On Australian Dollar

#OPINIONLEADER#

 SEP 20, 2021

• Iron ore price faces worst week since 2008 financial crisis
• China cut steel production to curb CO2 emissions
• Further downside of AUD/JPY expected

Chart 1: AUD/JPY H4 chart

It was reported last Friday that iron ore price plunged by 20%, making last week the worst week for iron ore since the 2008 financial crisis. The main reason behind the price weakness is that Chinese steel mills are dumping and lowering the demand of iron ore resulting from the production cut on steel by the Chinese government in an effort to curb CO2 emissions. Furthermore, a slowdown in construction activities in China is expected during the fourth quarter and into 2022.

Being the largest importer of iron ore, China’s reduction in demand of the raw material will have a negative impact on Australia’s revenue, leading to a weakening in the Australian dollar. At the moment, our technical indicators are showing a downward momentum of AUD/JPY. Together with the dovish tapering carried out by the Reserve Bank of Australia and the dented job market, AUD/JPY may be facing further downside, presenting selling opportunities.

Trade Setup for AUD/JPY (H4)

Sell Stop at 79.30

Upcoming major news that may impact price movement of AUD/JPY

21 September – Reserve Bank of Australia monetary policy meeting minutes release at 0930 (GMT+8)

22 September – Reserve Bank of Australia Assistant Governor Bullock speaking at 1000 (GMT+8)

22 September – Bank of Japan monetary policy meeting

23 September – Australian flash PMI data release at 0700 (GMT+8)

23 September – U.S. flash PMI data release at 1945 (GMT+8)