Spot iron ore closed at $86.70 a tonne last night, right on the 2012 low. Naturally, if this level breaks there is substantial downside in the offing for spot. The market has been bleeding but hasn’t yet truly capitulated.

Until now, it seems.

Trade in China today saw both steel and iron ore futures get absolutely hammered. There’s no hope of spot holding up now; we’ll be printing a fresh 5 year low later this evening.

Meanwhile the Aussie battler has climbed back above .9300 courtesy of yen weakness. The combination of Australia’s key export in freefall and its currency holding steady is rather toxic. And this way it will stay until short-term rates march higher in the US or lower in Australia.

And remember: to my knowledge no market economist is expecting lower rates in Australia.

It’s official: Spot iron ore drops to $85.70, lowest since September 2009. Now down 39% this year.