Dollar sinks below US90¢ barrier
It fell as low as US89.27¢ on Thursday morning before recovering to US89.71¢ late in the session.
The dollar slipped below US90¢ on Wednesday night, after a surprise rise in US growth for the second quarter and an improved employment report pushed the US dollar higher. It pared back some of its losses after better-than-expected Chinese manufacturing data, but remained on track to finish the week more than 3 per cent lower in what would be its biggest weekly fall since September 2011.
The dollar was already reeling from Reserve Bank governor Glenn Stevens' comments on Tuesday on inflation, which were interpreted as being dovish and pointing to further interest rate cuts.
"It's still ringing in the market's ears - all those comments from Stevens earlier in the week," RBS senior currency strategist Greg Gibbs said.
"The Australian dollar clearly remains in a down trend, having broken significantly through US90¢, so I think sentiment is still pretty poor for the currency."
The Australian dollar has shed about 15 per cent of its value against the greenback since April, and is the worst-performing currency against the US dollar in the past six months.
The dollar has also weakened against other currencies, shedding about 15.7 per cent against the euro, and more than 8 per cent against the Canadian and New Zealand dollars.
The currency had been consolidating some of its losses in July, trading mostly within the US90¢ to US93¢ range.
Westpac chief currency strategist Robert Rennie said while the Australian dollar faced more downward pressure, its large losses over the past few months were less likely to be replicated.
"There's a host of support levels that come in at US88.5¢ and US89¢. I think it would only be on rate cuts and guidance on further rate cuts to come, downward revisions from the RBA in terms of its economic forecasts, and stronger US data that we'll see further rapid falls in the Australian dollar," he said.
A slowing Chinese economy would also continue to weigh on the currency, with a separate HSBC-Markit manufacturing survey released on Thursday falling to an 11-month low as demand from domestic and external markets weakened, Mr Gibbs said.
Frequently Asked Questions about this Article…
The AUD fell below the psychological US90¢ barrier after surprise US economic strength — stronger-than-expected second-quarter US GDP and an improved US employment report — pushed the US dollar higher. Market reaction to dovish comments from RBA governor Glenn Stevens, which suggested the prospect of further interest-rate cuts, also weighed on the currency.
The Australian dollar fell as low as US89.27¢ on Thursday morning before recovering to around US89.71¢ later in the session. Earlier in July the currency had been trading mostly within a US90¢ to US93¢ range.
Since April the Australian dollar has shed about 15% of its value against the US dollar and, over the past six months, it has been the worst-performing currency versus the greenback.
The Australian dollar has also weakened about 15.7% against the euro and more than 8% against both the Canadian dollar and the New Zealand dollar, according to the article.
RBS senior currency strategist Greg Gibbs says the AUD remains in a downtrend and market sentiment is poor. Westpac chief currency strategist Robert Rennie acknowledges more downward pressure but believes the large recent losses are less likely to be repeated; he points to support around US88.5¢ and US89¢ and says further rapid falls would likely require rate cuts, RBA downgrades to forecasts, and stronger US data.
At one point better-than-expected Chinese manufacturing data helped pare back some of the AUD's losses, but a separate HSBC-Markit manufacturing survey fell to an 11-month low, and analysts say a slowing Chinese economy would continue to weigh on the currency.
According to the article, further rapid falls in the AUD would most likely be driven by RBA interest-rate cuts or guidance of additional cuts, downward revisions to RBA economic forecasts, and stronger-than-expected US economic data. A deteriorating Chinese economy would also add downward pressure.
Everyday investors should monitor key drivers highlighted in the article: US economic releases (GDP and employment), RBA commentary and potential rate decisions, and Chinese manufacturing and growth indicators — these factors have been central to recent AUD weakness and short-term support/resistance levels.
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