What happened to BHP and RIO shares?
Shares of large-cap Aussie miners, BHP Billiton Ltd [ASX:BHP] and Rio Tinto Ltd [ASX:RIO] both took a heavy beating today, as commodity prices fell following gains in the US dollar.
Why did Aussie Mining Stocks fall?
Almost all commodity prices are officially priced in US dollar terms. Therefore, when the US dollar moves in a big way, it has an impact on commodity prices.
Overnight, the US dollar had a major advance. It has gained more than 1.6% against the Aussie dollar. That’s a big move in the currency markets, where much smaller moves are considered ‘big’.
The dollar climbed higher because some investors are starting to think that the US Federal Reserve may move interest rates higher and more quickly than previously thought.
Therefore, the rising Aussie dollar has led to falls in the prices of several key commodities. As an example, the price of West Texas Intermediate crude oil, the benchmark US oil price, has fallen 2.5% over the past two days.
Copper, another key commodity, is down nearly 3%. Again, these are relatively big moves.
As you can imagine, when the prices of commodities move like this, it has a knock-on effect on companies that produce the commodities. Hence why BHP Billiton fell more than 1.5% today, and Rio Tinto fell more than 4%.
Australia’s third major iron ore producer, Fortescue Metals Group Ltd [ASX:FMG], fell more than 5.2% today.
What now for BHP Billiton, Rio Tinto and other resource stocks?
Resources stocks are always volatile. It’s the nature of the sector. But following the recent strong rally in a number of key commodities, it’s reasonable to expect a bout of profit-taking, and a reassessment by investors of whether the current valuations make sense.
The mining stocks were down in a big way today, but the way this sector moves, they could recover all their losses just as quickly by Monday’s close. This surely is a sector for speculators only.
By Kris Sayce