Iron ore, $A and shares hit the skids
The share market's gains for 2014 have been wiped out, the value of the country's biggest export is at a five-year low and the Aussie dollar has slipped below 89 US cents - all thanks to China.
Or at least, worries about China.
The iron ore price has slumped to its lowest level since September 2009, due to the impact on demand from China's slowing property boom.
The diminishing value of Australia's most important product has contributed to the local dollar's fall to its lowest level since February.
And the weaker dollar has driven overseas investors to sell Australian shares, compounding the fall already taken by the market because of lower commodity prices.
AMP Investments chief economist Shane Oliver says iron ore's severe fall will hurt the economy, reducing national income.
"If the projected outlook for the federal budget was not too flash back in May, it would look bleaker now because of the fall in the iron ore price," he said.
But a weaker Australian dollar - while a hit to travellers and online shoppers - actually provides a buffer against the iron ore price fall.
It reduces the hit to revenue for local miners, and also improves the prospects for businesses in other parts of the economy.
"In some ways I think we should be celebrating the fall in the Aussie dollar, it is like the missing piece of the puzzle," Dr Oliver said.
Low interest rates have stimulated the property sector, but most other parts of the economy been held back by the stubborn dollar, he said.
"It is critical in the balancing act.
"We've been waiting for a decent pickup in areas like tourism, manufacturing, and companies that have to compete internationally."
That boost to non-mining businesses should flow through to their share prices, and Dr Oliver predicts the market will rally again before the year ends.
Most brokers believe the market's recent fall - five per cent in just three weeks - isn't a bad thing anyway.
"There is nothing wrong with a pullback," IG market strategist Evan Lucas said.
"Record highs needs to be put in perspective."
By late Tuesday afternoon shares had already improved, buoyed by better-than-expected manufacturing activity in China.
Dr Oliver said that shows investors are "too twitchy" to each and every number coming out of China.
"The old saying used to be if the US gets a cold Australia gets the flu, but now it is the same thing with China," he said.
"I think it is an over-reaction.
"The point is it is still a strongly growing economy compared to the rest of the world."
IRON ORE, DOLLAR, SHARES ON THE SLIDE
Iron ore price at $US78.90, down 41 per cent since Jan 1
$A at 88.73 US cents, down from its year high of 95.07 US cents in July
All Ordinaries at 5416.1 points, down 4.3 pct from its high on Sept 2
