Oil prices hit 7yr low; iron ore prices hit 6yr low; Beijing on 'Red Alert'; China fx outflows quicken; UST 10yr yield 2.26%; NZ$1 = 66.5 US¢, TWI-5 = 71.8

Here’s my summary of the key events overnight that affect New Zealand, with news the US dollar is pushing higher.

And commodity prices are slumping.

Oil is now at a seven year low. OPEC’s white flag over the weekend brought about by Iran’s refusal to limit production means the cartel is now toothless. The market rules, and supply far exceeds demand. Prices have dropped to seven year lows. The cost of energy is now its cheapest in real terms, ever.

And that means air travel is likely to get less expensive.

Overnight, iron ore prices fell to US$39.06 per tonne, the lowest Qindao benchmark price since consistent records started in 2009. (In 1988, using a different basis, the IMF said iron ore prices fell to US$10.88/tonne.) This is a very long way down from the record US$165/tonne reached in January 2011. Not only is the key market of China not buying, new major supply is coming on stream, especially in Australia. Many industry observers don’t see the iron ore price ever recovering, and production shutdowns are very possible.

One place that could really do with less oil and steel making is Beijing. Authorities there issued a ‘Red Alert’ over air pollution today and said the extreme smog may last all week.

Beijing is also watching a growing flood of money leaving the country. Their massive foreign-exchange hoard fell in November to its lowest level in more than two years. The official media said these falls were larger than expected.

Trading in dairy futures shows that the slump in hard commodity prices has not hit soft commodities. WMP futures are holding. The next dairy auction is next week. Tomorrow, Fonterra will be giving an update on its current season payout. No change is expected from its current $4.60/kg estimate.

In New York, the UST 10yr yield benchmark followed up is 1 bp slip on Friday with another one today and is now at 2.26%.

The US benchmark oil price is down yet again, now at US$38/barrel, while the Brent benchmark is at only US$41/barrel.

The gold price also fell, now at US$1,078/oz.

Accentuating the trend, the New Zealand dollar has also fallen back today. It is currently at 66.5 US¢, down 1c, at 91.5 AU¢ and at 61.3 euro cents. The TWI-5 is now at 71.8.

If you want to catch up with all the local changes on yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ». And don’t forget to vote in the Flag Referendum.

Daily exchange rates

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