Economic jitters continued to reverberate around the world yesterday with Australia not immune to the pain being felt globally.
The Australian dollar sank to its lowest point against the US dollar in almost eight months, hitting 96.34 US cents at the end of five weeks of straight losses against the greenback.
It was also grim news for Australian shares, which suffered their biggest losses in two years last month, shedding about 7.3 per cent or about $100 billion.
The ASX200 is expected to continue its slide when markets open tomorrow.
The downward spiral will put pressure on the Reserve Bank to cut its cash rate again when it meets to set interest rates on Tuesday.
Sharemarket investors predict an even chance for a 50 basis-point cut in the cash rate with a 25 basis-point cut almost certain, while economists are divided on whether the Reserve Bank will lower the rate or leave it steady at 3.75 per cent.
Last week, Westpac's chief economist, Bill Evans, predicted that the official cash rate would drop as low as 2.75 per cent by Christmas and standard variable rates on mortgages would sink to 6 per cent.
However, the predicted fall in interest rates is not enough to restore faith in the property market, with home buyers increasingly gun shy, according to May figures from RP Data-Rismark.
Median house prices in Sydney dropped by 2 per cent last month, following three months of growth.
The decline was most severe in the more exclusive end of the Sydney market, with prestige properties falling by 6.4 per cent in May.
However, Sydney unit prices fared reasonably well, increasing by 2.2 per cent over the same period.
While May is traditionally a sluggish period in the property market, analysts have also pointed to international economic turmoil to explain why buyers are spooked.
The latest ructions were triggered by disappointing US employment figures for the month of May. Unemployment rose from 8.1 per cent to 8.2 per cent over the period, raising questions about whether the US will be able to drive a global recovery.
US stocks fell more than 2 per cent on the back of the jobs report, adding to fears that Europe's spiralling debt crisis was dragging down the world economy.
Major markets in Europe were down last week and there are continued concerns about Greece's potential exit from the eurozone.
Australia's resource sector, credited with protecting the economy from the worst of the crisis, is looking shaky due to a fall in oil prices and an economic slowdown in China.
Resource companies face a tough start to this week, especially those in the energy sector, after oil prices sank 3.8 per cent in New York to the lowest level in eight months.
BHP Billiton shares fell 0.8 per cent in New York, while Rio Tinto's US-listed shares fell 1.2 per cent.
Australia's biggest market, China, is also showing signs of softening, denting commodity prices and cutting demand for the Australian dollar.