Forex Market: AUD/USD resumes slide amid further weakness in iron ore, focus sets on Fed Chair Powell’s testimony

AUD/USD resumed its retreat on Tuesday, as iron ore prices continued to drop, while China prepares to tighten oversight of the commodity market.

The most recent drop in iron ore futures narrowed the commodity’s year-to-date advance to 30%, while China was set to step up inspections into the market.

“China is upping the ante on a move towards increased ferrous self-sufficiency which will in time see iron ore prices lower,” Westpac strategists wrote in an investor note, cited by Reuters.

“However, even with that iron ore prices remain just shy of all-time record highs… our measure of fair value for the A$ has actually risen by 4% over the last 4 weeks. The degree of stretch has hit historical extremes,” they added.

Additionally, the Aussie dollar has been pressured by recent strength of its US counterpart, after the Federal Reserve signaled last week a sooner-than-anticipated end to its ultra-accommodative monetary policy.

Today market players will be closely watching a testimony from Fed Chair Jerome Powell before Congress for more clues over the central bank’s recent surprise policy outlook shift.

“We’ve had a meaningful shift (at the Fed) from a longtime dovish stance to now a slightly hawkish one,” Westpac currency analyst Imre Speizer said.

“We’ve had a bit of a positioning cleanout. The whole world was mega short the U.S. dollar, and that’s in good part probably been cleaned out already, and now we take a wee breath before the next move up,” Speizer added.

As of 8:36 GMT on Tuesday AUD/USD was edging down 0.50% to trade at 0.7497, while moving within a daily range of 0.7495-0.7545. Last Friday the pair slipped as low as 0.7477, which has been its weakest level since December 21st 2020 (0.7462). The major currency pair has retreated 2.98% so far in June, following a 0.26% gain in May.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -16.54 basis points (-0.1654%) as of 8:15 GMT on Tuesday, down from -15.6 basis points on June 21st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7520
R1 – 0.7562
R2 – 0.7588
R3 – 0.7630
R4 – 0.7672

S1 – 0.7493
S2 – 0.7451
S3 – 0.7425
S4 – 0.7398