Australia is a major producer of iron ore, copper, and gold so fluctuations in those prices significantly impact the local dollar. After a grueling 2015 that saw all three commodities close the year in the red, a rally is finally underway and that in turn, is lifting the Aussie.
This week has seen iron ore prices soar nearly 20 percent in its biggest daily gain since 2009, copper climb to a four-week high, and gold hover at a 13-month peak.
However, it remains to be seen whether the recovery can continue, especially in iron ore—Australia's top export.
"We've seen a degree of irrational exuberance in the iron ore market.... I really don't see any fundamental change in the overall balance between demand and supply and for that reason, we're not going to see a continuation of this price recovery," said Gavin Wendt, founding director and senior resource analyst at Mine Life.
Barclays is also betting on lower iron ore prices ahead, which adds greater pressure on the Aussie, the bank said in a Tuesday note. It has a year-tend target of 65 U.S. cents, which represents 13 percent downside from Tuesday's close of $0.7438.