The Iron Ore & AUD Strategy is a macro-driven forex trading approach that capitalises on the strong correlation between iron ore prices and the Australian dollar (AUD). As Australia is the world’s largest exporter of iron ore—primarily to China—movements in iron ore prices significantly impact the country’s terms of trade, current account, fiscal balance, and central bank outlook. The strategy seeks to exploit these macro linkages to forecast and trade directional moves in AUD/USD and AUD crosses.

This method suits swing and position traders who combine commodity price cycles, Chinese economic data, and technical trend setups.

Why Iron Ore Drives the AUD

• Iron ore accounts for over 30% of Australia’s total exports, making it the country’s largest single export product
• Most iron ore is exported to China, linking AUD closely to Chinese steel demand and industrial activity
• Rising iron ore prices improve Australia’s trade balance and GDP → bullish AUD
• Falling prices reduce export income and weigh on growth → bearish AUD

Strategy Objective

• Monitor iron ore price trends as a leading indicator for AUD movement
• Confirm with technical and macro signals on AUD/USD and related pairs
• Trade breakouts, pullbacks, or reversals aligned with commodity and global demand trends

Step-by-Step Strategy Execution

Step 1: Track Iron Ore Market Trends

Use:

• SGX TSI Iron Ore Futures (most liquid iron ore contract)
• Spot prices from Platts or Fastmarkets MB
• China steel production, real estate, and construction data
• Australian export and port shipment volumes

Bullish trend signs:

• Strong demand from China (e.g. property stimulus)
• Supply issues in Brazil or Australian mines
• Rising steel margins in China
  → All point to AUD strength

Bearish trend signs:

• China steel output caps
• Inventory build-ups at ports
• Falling construction or PMI data
  → Negative for AUD

Step 2: Align With Australian Fundamentals

• Rising iron ore → stronger trade balance → potential RBA hawkishness
• Falling iron ore → weaker fiscal revenue → RBA dovish bias or risk-off sentiment

Check:

• RBA rate guidance
• Inflation trends and terms of trade data
• China–Australia trade relations and tariffs

Example: Iron ore rallies + RBA hints at future hikes → bullish AUD/USD setup

Step 3: Technical Entry Setup

Trade AUD/USD, AUD/JPY, or AUD/NZD for clearest exposure

Technical tools:

• Price structure (double bottoms/tops, trendline breaks)
• 50 EMA / 200 EMA crossovers
• RSI divergence confirming reversal near iron ore support/resistance
• MACD trend confirmation

Example Setup:

• Iron ore breaks out above $120/tonne
• AUD/USD consolidates above 0.6600, forms bullish flag
• Enter long on breakout; target 0.6800, SL below 0.6560

Step 4: Monitor Macro and Policy Catalysts

• China stimulus packages (especially infrastructure and property)
• RBA monetary policy decisions
• Global risk sentiment (AUD is risk-sensitive)
• Australian trade and employment data
• Brazil or Australia supply disruptions

Pro tip: Use copper and coal prices as secondary confirmers—strong industrial metals = broader AUD strength

Step 5: Risk Management and Exit

• Use tighter stops around major commodity data releases or RBA decisions
• Exit trades near multi-month resistance or fib extensions
• Adjust position size for heightened volatility around Chinese New Year or mid-year construction cycle

Example Trade: 2020 Iron Ore Rally

• China rebounded from COVID shutdowns with aggressive infrastructure spending
• Iron ore surged from $85 to $160+
• AUD/USD rose from 0.6400 to 0.7800 over six months
• Traders long AUD/USD on technical pullbacks aligned with iron ore uptrend captured strong macro-driven profits

Advantages

• Strong, macroeconomic correlation backed by export data
• AUD is liquid and technically responsive
• China demand and stimulus are publicly tracked
• Repeatable strategy across commodity cycles

Limitations

• AUD can be affected by broader risk sentiment, not just iron ore
• Short-term decoupling may occur during political or RBA shocks
• Iron ore market has low retail visibility—requires niche tracking tools
• Commodity prices can be volatile and prone to speculative spikes

Risk Management Tips

• Avoid overexposure around China property sector news
• Scale in after confirmation—don’t anticipate reversals
• Hedge with commodity baskets or use cross-pairs (e.g. long AUD/NZD) for relative plays
• Be aware of AUD’s correlation to equities during risk-off episodes

Conclusion

The Iron Ore & AUD Strategy is one of the most effective commodity-currency plays available to macro traders. By combining real-time iron ore market trends with technical entries in AUD pairs, traders can consistently align with Australia’s export cycle and capture extended directional moves.

To build your edge in commodity-linked FX trading and professional macro setups, enrol in our Trading Courses and learn to trade the world’s top resource currencies with confidence and precision.