US stocks a bit lower, Europe a bit higher, oil rises and spot iron ore drops to US$49.53 - ASX futures up 23

Today's first chart is another reason why I'm sure the market will continue to predict a rate cut for next week - it illustrates the nosedive in the price of iron ore (courtesy of CME Group). As the chart shows the price of iron ore futures for April delivery was about US$70 per tonne at the beginning of this year, and now it sits about 30% lower at US$48.60. Meanwhile Fortescue Metals (FMG) Chairman Andrew Forrest continues to blame BHP and RIO for the oversupply and subsequent softening of the iron ore price; however, what he fails to hypothesise is what he would do if he were in their shoes. He says, "RIO is competing with BHP to smash global investment returns for their shareholders" while in the same breath, "Their statements that they will expand [production] at any price drives down that price in their endeavour to drive everyone else out of business." Well yes indeed BHP and RIO are likely attempting to tighten up the oligopoly over iron ore, but they're doing it because they can afford to take the short-term pain due to their diversified revenues from other mining assets and operations. This is a strategic move and not a personal one, so I'm not sure how Forrest has concluded that they're purposely trying to lower returns for their shareholders. So Forrest is beginning to sound a little desperate and I don't think that is helping his 33% holding in FMG - maybe he would be best served by ignoring the share price and carrying on quietly lowering his cost of production, allowing analysts to find the value rather than be spruiked to. In FMG's latest guidance (released February) its second-half 2015 forecast all-in cost of a dry metric tonne was US$45 - so its understandable why Forrest is feeling the pressure. Having said that, the April futures overstate the drop a little, spot iron ore of the same quality settled at US$49.53 last night.

The second chart today shows a predictably week AUDUSD, in the face of weak commodity prices and a rate cut probability. No surprises there - the challenge now is to anticipate how much of the rate cut is priced in for next Tuesday's decision. Will a 25 basis point cut be enough to drive it lower and turn US$0.76 support into key selling resistance? Quite possibly - it's not looking anything like a low-risk set-up right now, moderate-risk traders are probably best to stay away until next Tuesday is out of the way. US dollar spot gold (third chart) shows a recover last night, as does the last chart showing WTI crude (OILUS), which is probably a couple of dollars away from a low-risk short set-up (sell at US$51.50-US$53.00 with stops above US$54.00).

There will be no morning market wrap tomorrow due to the public holiday tomorrow (the ASX will be closed and it is not counted as a settlement day), but currency traders should be aware that the US employment report will be released Friday at 11:30pm Sydney time.


Today‚Äôs charts are taken from the Rivkin Trader platform. 30,000 global instruments available to trade including FX, commodities, index, ETFs and international shares. Trade Australian share CFDs from just $8 or 0.10%. Click here or phone 1300 748 546 to open a Rivkin Trader account now.

Upcoming economic announcements: Australian trade balance out at 11:30am, US trade balance out at 11:30pm, all Sydney time.


This article was written by Scott Schuberg, CEO of Rivkin Securities Pty Ltd. Enquiries can be made via info@rivkin.com.au or by phoning +612 8302 3600.

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