OANDA senior trader Stephen Innes said stronger-than-expected first-quarter economic growth had provided Chinese authorities with room to move on economic deleveraging. “Investors have little option but to comply and reduce positions, [but] the underlying fundamentals win out at the end of the day,” he said.
The impact of the Chinese credit crunch on the iron ore downturn has been much debated. “Mainland investors view commodities as a US dollar hedge on the anticipated reflationary trade,” Mr Innes said. Iron ore fell 2.5% to $US66.53 a tonne on Tuesday, after falling 25 per cent in the past month.
While it’s possible a reduction in such speculation – due to the capital crackdown – is behind the asset’s rapid falls, Mr Innes points out that periods of high speculation also tend to be accompanied by high capital outflows. This hasn’t been the case recently, leading him to think iron’s price movements have more to do with the metal’s global supply glut.
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