Dollar tipped to sit lower after roller-coaster ride
The dollar fell to a fresh 20-month low against the US dollar and lost 5 per cent in its sharpest weekly fall in two years against the Japanese yen.
The dollar rallied as high as US96.74¢ on Friday, rebounding strongly from a 20-month low of US94.35¢ early in the session. It later rose and was trading at US95.23¢ and ¥92.06 late on Friday.
The sharemarket, which has seen an exodus of foreign investors as the currency slipped, has shed almost all its gains for the year. The S&P/ASX 200 Index closed 3.8 per cent lower for the week at 4737.7. The broader All Ordinaries Index shed 3.8 per cent to close the week at 4729.3.
Since the Australian dollar started its slide in early May, it has lost 7.7 per cent against the US dollar and 12.5 per cent against the yen, making it one of the most underperforming currencies in the world, strategists said.
On the Reserve Bank's trade-weighted index, the Australian dollar weakened to a new low of 72.2. But currency strategists said the recent volatility and downward slide could soon end as confidence returns to the Australian dollar.
"We haven't tried these levels for some time so it creates uncertainty in the marketplace," RBS senior currency strategist Greg Gibbs said.
"The bouncing factor is that for the rest of this year and going into next year there'll be a lot of global liquidity from other central banks continuing to use quantitative easing measures, and Australia is still a relatively safe investment location."
Rochford Capital director Derek Mumford said positioning on the Australian dollar was so short it would be subject to some bounces higher.
"The Australian dollar in this run-down has maybe reach the bottom around US94¢, which is a key level and the low back in 2011," he said.
"At the end of the day, our economy is still relatively strong. We've still got an interest rate advantage over the rest of the G7 and major currencies, and at the moment, China is still growing at a relatively good pace," he said.
"So I don't think things are as bad as perhaps the market is [expecting] for the Aussie at this point in time."
Commonwealth Bank foreign exchange economist Chris Tennent-Brown said US non-farm payrolls for May, which measures employment and was set to be released on Saturday morning, could weigh on the Australian dollar.
Inflation, industrial production and retail sales figures from Australia's largest trading partner, China, which will be released on the weekend, would "take a back seat" to the much-anticipated US data but could influence the currency's trajectory in the short-term, Mr Tennent-Brown said.
Frequently Asked Questions about this Article…
The Australian dollar has experienced a roller‑coaster due to turbulence in global currency markets and heavy selling pressure since early May. Strategists say the AUD has slid as foreign investors exited the market, and large short positions have amplified moves. Analysts also point to shifting global liquidity from other central banks as a key factor behind the volatility.
Since early May the AUD has lost about 7.7% against the US dollar and roughly 12.5% against the Japanese yen. The currency dropped to a fresh 20‑month low (around US94.35¢) before rebounding to as high as US96.74¢ in the same session and trading near US95.23¢ later on Friday. It also fell about 5% in its sharpest weekly decline in two years vs the yen.
The currency weakness has coincided with an exodus of foreign investors and the sharemarket losing almost all its gains for the year. Over the week the S&P/ASX 200 Index fell 3.8% to 4,737.7 and the All Ordinaries dropped 3.8% to close at 4,729.3.
Yes — several analysts expect the AUD could stabilise at a lower level or bounce back. Reasons cited include ongoing global liquidity from other central banks using quantitative easing, Australia’s relative appeal as a safe investment location, short market positioning that may trigger rebounds, and Australia’s still‑relatively strong economy and interest rate advantage over many G7 currencies.
The Reserve Bank's trade‑weighted index showed the AUD weakened to a new low of 72.2. In the article this is presented as evidence that the currency has moved to historically weaker levels, contributing to uncertainty in the marketplace.
Investors should watch US non‑farm payrolls (May) — the Commonwealth Bank's FX economist said that US payrolls could weigh on the AUD. Also keep an eye on China’s inflation, industrial production and retail sales data; while they may take a back seat to US data, they could still influence the currency’s short‑term trajectory.
Some strategists, including Rochford Capital’s Derek Mumford, suggest the AUD may have reached a key low around US94¢ — a level last seen in 2011. He argued that extreme short positioning means the currency is subject to bounces higher, though this is one view among analysts.
Based on the analysts' comments in the article, everyday investors can monitor key indicators (US payrolls and Chinese data), watch market positioning for signs of short-covering, and be mindful that global liquidity conditions and Australia’s economic fundamentals (interest rate advantage, trade links with China) are likely to influence AUD moves. Adjusting foreign‑currency exposure and staying diversified can help manage currency risk.
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