Australian Dollar Sharply Lower on Iron-Ore Price Slide

 
   By James Glynn 
 

        SYDNEY--The Australian dollar was sharply lower Wednesday due to ongoing weakness in the price of iron ore and data showing consumer confidence has crumbled in the last month.
        At 0710 GMT, the Australian dollar was trading around US$0.9234, compared with US$0.9356 late Tuesday.
        Iron ore fell below US$100 per ton this week to its lowest level in 20 months, highlighting a major risk to the Australian economy as commodity prices fall. Iron ore is Australia's biggest export, accounting for around 20% of all exports.
        "The lower iron-ore price remains an important downside risk to the Australian dollar in the near term," said Peter Dragicevich, currency strategist at the Commonwealth Bank of Australia.
        Still, Mr. Dragicevich said iron-ore prices will rebound as temporary factors abate.
        "The iron-ore price should recover following the seasonal drift lower and the Australian economy is still in good shape and the next move by the Reserve Bank of Australia is likely to be a rate hike rather than a rate cut," he said.
        Meanwhile, the Westpac-Melbourne Institute index of consumer sentiment Wednesday showed a drop of 6.8% in May from April to its lowest level since August 2011.
        The Westpac report followed the ANZ Bank's data on consumer confidence Tuesday, which showed a whopping 14% fall in the past four weeks.
        "The slump in consumer confidence in May along with very low wages growth are consistent with the RBA maintaining interest rates at current low levels for a while yet," said Shane Oliver, head of research at AMP Capital.
        "If consumer confidence does not bounce back in the months ahead it's likely that there will be increasing talk that the next move in interest rates will be down," Mr. Oliver added.
        Interest rates in Australia are at a record low 2.5% as the RBA cushions the economy against a fading mining-investment boom. The central bank said this week that low rates are likely to persist for some time.
        Write to James Glynn at james.glynn@wsj.com
        (END) Dow Jones Newswires

        May 21, 2014 03:47 ET (07:47 GMT)