Aussie dollar follows commodities lower

The Aussie dollar continued its correction overnight, underperforming inline with fresh falls in key commodities.

Though the local unit hit an intra-session high of 75.28 U.S. cents, at the Asian open on Wednesday, the Australian dollar was trading at 74.54 US cents, down from 74.89 US cents on Tuesday. By 0920, the unit was trading at 74.64 U.S. cents.

Lower oil prices and the continuing slide in iron ore - Australia's largest export, down 17 percent from its March 7 high - weighed on commodity currencies and offshore equities overnight.

"The recent spike up in iron ore prices was driven more by sentiment, seasonality and positioning rather than a sustainable change in fundamentals," Commonwealth Bank of Australia currency strategist Joseph Capurso said.

"The fundamental backdrop of rising global supply, and softer demand (as illustrated by the recent Chinese industrial production and investment data) points to a further retracement in iron ore prices that will help the Australian dollar to consolidate."

Markets are closely watching comments from the U.S. Federal Reserve's two-day policy meeting, where its expected rates will remain on hold, but near-term U.S. growth will be slightly trimmed.

The underlying risk is the U.S. dollar may be supported should the U.S. Federal Reserve be perceived to be less dovish, weighing the Aussie, Carpurso said. Endit