STOCK MARKET WATCH -- Monday, 24 September 2012

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33. Aussie Debacle Flags China Hard Landing as Iron Market Melts

http://www.bloomberg.com/news/2012-09-23/aussie-debacle-signaling-china-hard-landing-as-iron-market-melts.html

From the end of 2008 through July, no major currency appreciated as much as Australia’s dollar, thanks to booming shipments of iron ore and other commodities to China. Since then, it’s the worst performer as the engine of world growth slows.

The so-called Aussie depreciated 1.6 percent in the past month, the biggest decline among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Traders are betting Australia’s central bank will cut interest rates to boost growth, dragging down the currency even though the Standard & Poor’s GSCI Index of commodities has risen about 18 percent from its low this year in June.

This reversal shows the dangers for an economy tied too closely to another. China, which buys 28 percent of Australia’s exports, said industrial output grew at the slowest pace in three years last month as Europe’s debt crisis cut sales of Chinese goods. Polls show Prime Minister Julia Gillard’s governing Labor Party is under pressure before elections due next year.

“The Australian dollar is very expensive from whichever metrics you look at,” Dagmar Dvorak, a director of fixed-income and currencies in London at Baring Asset Management, which oversees $50 billion, said in an interview on Sept. 20. “When a currency overvaluation is that extreme, you have to question what could be a trigger that stops it. For the Aussie, it’s the economic slowdown in China and falling commodity prices. The currency looks vulnerable.”