Following up on our recent Shipping conversations ("Shipping is a leading credit indicator - A follow up"; "Shipping is a leading deflationary indicator"), we thought we would venture towards "Down Under", namely Australia given the recent weakness of Chinese Iron-Ore Inventory which have been declining for four weeks and are now below 2011 highs represent a serious conundrum for Australia's economic growth in general and AUD-USD in particular.
In fact since the beginning of the year both the Brazilian Real as well as the Australian Dollar have experienced a significant weakness versus the US Dollar - source Bloomberg.
As Dylan Grice put it in his note "Australians be worried: someone is calling your country a miracle!" from the 25th of April:
In fact Deutsche Bank analysts in their note "Iron Ore Summer Slowdown" remain cautious near term:
China growth cooling and implications for Iron Ore:
As indicated by Reuters on the 24th of May:
From the same article:
"If prices were to hit $120 a tonne, it could lead to the closure of some high-cost Chinese miners."
It's still a game of survival of the fittest in this deflationary environment...
And as Dylan Grice put it in his note focusing on Australia:
Hence our negative view on Australian Dollar.
"All truth, in the long run, is only common sense clarified."