Australia, NZ dollars dragged lower by iron ore weakness

SYDNEY: The Australian and New Zealand dollars fell on Tuesday amid further weakness in iron ore prices, as China tightens its oversight of the market and targets speculative trading and steel production.

The Australian dollar was trading 0.29% at $0.7520, near its lowest since late last year, as iron ore and copper prices extended their falls.

The New Zealand dollar was 0.16% lower $0.6978, after hitting a seven-month low of $0.6923 on Friday.

The Aussie and its kiwi dollars have fallen 4.6% from their May highs of $0.7891 and $0.7316, respectively, despite high commodity prices, as investors and central banks turn their focus to a recent quickening in inflation and whether that will lead to shifts in monetary policy.

But on Tuesday, investors were turning their focus back to fundamental factors, traders said.

Another fall in benchmark iron ore futures in China on Tuesday, which narrowed price rises to 30% so far in 2021, hurt the commodity-price sensitive currencies, as Beijing's plans to step up inspections into commodity pricing.

"China is upping the ante on a move towards increased ferrous self-sufficiency which will in time see iron ore prices lower," Westpac strategists said in a note.

"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."

Recent strength in the greenback, which has firmed since the Fed last week flagged sooner-than-expected interest rate hikes, has also been hurting the antipodean currencies.

On Tuesday investors were turning their attention to expected comments from Federal Reserve Chair Jerome Powell due later in the day.

Australian and New Zealand government bonds fell, taking their lead from US Treasuries, with yields on 10-year Australian bonds moving 8 basis points higher to be at 1.55%, reversing falls of similar magnitude on Monday.

New Zealand bonds of the same maturity were trading 10 basis points higher at a yield of 1.85%, the highest since June 8.