The Australian dollar moved lower on Tuesday as industrial metals prices on commodity exchanges, while local investment bank Westpac suggested the currency was overvalued.
Australia's economy is highly dependent on exports: it is one of China's largest trading partners, shipping huge quantities of copper, iron ore, wheat and other commodities and is therefore highly exposed to rises and falls on commodity exchanges.
On Tuesday, prices of industrial metals fell, with copper down 1.4% and iron ore down 1.47%.
"A channel of recent Aussie support – rising iron ore prices – looks set to revert," said Viraj Patel, foreign exchange strategist at ING.
"Our commodities team see the rally up to US$75 per tonne as overdone. An added headwind is the spectre of US steel tariffs.
"Given that this could occur anytime, the unpredictability may act as a limiting factor for Aussie dollar bulls in the absence of any other major catalysts."
Overvalued Aussie - Westpac
Meanwhile, domestic investment bank Westpac said the Australian dollar was looking "expensive again" after the recent rally.
"Our fair value model framework thus suggests that as much as 70% of the recent rise in the A$ could have been driven by the recent slide in the US$," Westpac said.
"If history is a guide, that leaves the A$ looking ‘expensive’ at least on the basis of our fair value framework."
The bank concluded: "Such periods of overvaluation have usually been followed by goodly falls."
Indeed, the reaction on Tuesday was larger than the average foreign exchange price fall.
The Australian dollar fell 0.65% against its US namesake to $0.7964, and was down 0.82% versus the yen to Y88.17.
Sterling was 0.37% higher to A$1.7505 and the euro rose 0.44% to €1.5371.