Outback angst

11 September 2012 By Ian Campbell

Muscular Australia, or flab? The economy looks distorted with paunches in debt, trade and house prices. A less buoyant China and iron ore price are serving as a stress test. Lower rates and a weaker Aussie dollar can help with rebalancing – but might not be needed.

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Spot iron ore prices posted their biggest one-day gain on record on Sept. 10 after Beijing approved more than $150 billion in infrastructure projects. Prices rose to $95 a tonne after falling to $86.7 a tonne last week, the lowest since October 2009 and less than half their February 2011 peak.

The Australian dollar rose to $1.04 against the U.S. dollar on Sept. 11, buoyed by higher iron ore prices against an American currency weakened by the possibility of further quantitative easing by the U.S. Federal Reserve.

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