Dollar slides into role of whipping boy
Investors rushed out of the risky asset as the US Federal Reserve tipped an end to its stimulus program.
The currency plunged to a 33-month low of US92.62¢, a fall of nearly US3¢, after the statement.
It extended its drop to US92.42¢ shortly before midday on Thursday as new data from China showed its manufacturing sector weakening in June to a nine-month low. Last night it was at US91.93¢.
While other commodity currencies such as the Mexican peso, Brazilian real and South African rand have also declined against the US dollar, the Australian currency - as one of the world's most traded - received special attention from investors, currency strategists said.
"It's become a whipping boy for the broader market turmoil that we are seeing," NAB head of currency strategy Ray Attrill said.
"That's probably why it has fallen almost more than any other emerging-market currency ... people have learnt to use it almost as a proxy for broader risk aversion and as the hedge against, for example, long equity portfolios."
Westpac chief currency strategist Robert Rennie said the dollar was "singled out in recent sessions for some pretty aggressive treatment" and could fall further, with financial markets looking to US91.88¢ as the next psychological barrier.
The recent volatility in the value of the dollar and expectations of a lower interest rate meant the currency was becoming less attractive in the "carry trade", Rochford Capital director Derek Mumford said.
The carry trade involves borrowing currencies with low interest rates and investing in those with higher interest rates. An increase in the volatility of a currency would expose investors to losses.
Frequently Asked Questions about this Article…
The Australian dollar fell sharply after the US Federal Reserve signalled an end to its stimulus program, which pushed investors out of risky assets. The currency dropped to a 33‑month low of US92.62¢ and extended to US92.42¢ as China’s June manufacturing data also showed a weakening to a nine‑month low.
NAB’s head of currency strategy Ray Attrill said the AUD has become a 'whipping boy' because investors are using it as a proxy for broader risk aversion. In volatile markets the dollar is being singled out and sold more heavily, effectively acting as a hedge against declines in long equity portfolios.
When the Fed tipped an end to its stimulus, investors rushed out of riskier assets, putting downward pressure on the AUD. That reaction contributed directly to the currency’s sharp fall as markets repriced risk and liquidity expectations.
Westpac’s chief currency strategist Robert Rennie warned the dollar was 'singled out' for aggressive selling and could fall further, with financial markets eyeing US91.88¢ as the next psychological barrier.
China’s manufacturing slowdown lowers demand expectations for commodities and heightens risk aversion, which can weaken commodity‑linked currencies such as the AUD. The article notes the AUD extended its drop after China’s manufacturing fell to a nine‑month low in June.
Yes. The article notes declines in other commodity currencies — including the Mexican peso, Brazilian real and South African rand — but says the AUD, as one of the world’s most traded currencies, received particular attention from investors.
The carry trade involves borrowing currencies with low interest rates and investing in those with higher rates. Rochford Capital director Derek Mumford said recent AUD volatility and expectations of a lower interest rate make the currency less attractive for carry‑trade strategies, since higher volatility increases the risk of losses.
Be aware that volatility can expose investors to losses, especially if the AUD is being used as a proxy for broader risk aversion or a hedge for equity positions. The article highlights that rapid moves driven by central‑bank signals and weaker China data can intensify selling pressure on the currency.
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