The Australian dollar has surged to an eight-month high on the back of a "spectacular" jump in iron ore prices.
The Australian dollar has surged to an eight-month high on the back of a "spectacular" jump in iron ore prices.
At 0700 AEDT on Tuesday, the local unit was trading at 74.70 US cents, up from 74.0 US cents on Monday.
The dollar surged to 74.85 US cents overnight.
Westpac economists said a 6.0 per cent rise in Brent crude oil prices supported the currency, but the real driver was iron ore.
Spot prices for the metal exploded by 18.5 per cent, their biggest single gain since daily pricing began in 2008, amid expectations Chinese steel mills were planning a short-term boost in production.
"The AUD outperformed, which is unsurprising given the spectacular jump in iron ore prices, rising from 0.7400 to 0.7485, an eight-month high," the Westpac economists said in a note on Tuesday.
Some media reports said the bullishness on Chinese steel output was triggered by the plans of authorities in Hebei province, the country's top steel making region, to order mills to slash production in a bid to limit air pollution during an upcoming international horticultural show.
But Westpac economists said iron ore prices were also boosted by China's weekend pledge to maintain its annual economic growth target at least 6.5 per cent.
They said momentum remained positive for the Australian dollar on Tuesday, with a chance the currency could push above 75.33 US cents.
"Rising commodity prices and risk sentiment in general are contributing factors," the economists added.
The only local risk factors for the dollar on Tuesday are National Australia Bank's business confidence survey and a speech by Reserve Bank of Australia deputy governor Phillip Lowe.
CURRENCY SNAPSHOT AT 0700 AEDT ON TUESDAY
One Australian dollar buys:
* 74.70 US cents, from 74.0 cents on Monday
* 84.60 Japanese yen, from 84.23 yen
* 67.83 euro cents, from 67.40 euro cents
* 110.21 New Zealand cents, from 109.17 NZ cents
* 52.38 British pence, from 52.13 pence
(*Currency closes taken at 1700 AEDT previous local session)
