Parity looms as dollar hit by US surge
Late on Friday, the Australian dollar was trading at US100.63¢, down from US102.43¢ on Thursday.
The Australian currency fell to US100.47¢ early on Friday, its lowest level since June.
Early on Friday morning, the US dollar shot to 101.21 Japanese yen, passing the 100-yen mark for the first time in four years.
FOREX.com research analyst Chris Tedder said the greenback's surge came after a report showed that US claims for unemployment benefits last week dropped to their lowest level in more than five years.
He said this further sign of strong employment growth sparked speculation that the US Federal Reserve may start to scale back its economic stimulus programs, which have weighed on the American dollar for the past couple of years.
"A break to parity with the US dollar may elude the Aussie for now, given the strength of support around US100.5¢ and US100¢," Mr Tedder said.
"However, we can see further Australian weakness in the long term. If the walls around parity fall in the near term, then we may see price action replicate the massive sell-off of April and May last year."
A currency report by banking major HSBC said a break below parity against the US dollar may be seen in the near future.
"The combination of the RBA's rate cut, the sharp fall in commodities and weak data from China has been particularly painful for the Aussie dollar," HSBC said in a note to clients. "We continue to see downside pressure and believe a break below parity against the USD may be seen in the near future."
The Australian currency traded in a tight range for the remainder of the day session, showing no reaction to the Reserve Bank of Australia's statement on monetary policy, which reaffirmed economic growth forecasts and cut inflation forecasts.
Markets on Friday night will be closely watching a speech by US Federal Reserve chairman Ben Bernanke to a conference hosted by the Chicago Federal Reserve.
Frequently Asked Questions about this Article…
The Australian dollar weakened after a big pre-dawn rally in the US dollar. FOREX.com analyst Chris Tedder linked the greenback's surge to a report showing US unemployment claims fell to their lowest level in more than five years, sparking speculation the US Federal Reserve may scale back stimulus. HSBC also pointed to the RBA's rate cut, a sharp fall in commodities and weak data from China as additional downward pressure on the AUD.
Late on Friday the Australian dollar was trading around US100.63¢, down from US102.43¢ the previous day, and it fell as low as US100.47¢ early on Friday — its lowest level since June. The article notes growing talk about parity with the US dollar and analysts watching support levels around US100.5¢ and US100¢.
Chris Tedder said a break to parity may elude the Aussie for now because of support near US100.5¢ and US100¢. However, he warned of possible further Australian weakness in the long term and said that if the barriers around parity fall, price action could replicate the massive sell-off seen in April and May last year.
HSBC's currency report said a break below parity against the US dollar may be seen in the near future. The bank cited a combination of the Reserve Bank of Australia's rate cut, the sharp fall in commodities and weak economic data from China as particularly painful factors for the Aussie and reasons for continued downside pressure.
No — the Australian currency traded in a tight range for the rest of the day and showed no reaction to the RBA's statement, which reaffirmed economic growth forecasts and cut inflation forecasts.
Markets were expected to closely watch a speech by US Federal Reserve chairman Ben Bernanke at a Chicago Fed conference, which could influence the US dollar and in turn the AUD. Investors should also pay attention to US economic data such as unemployment claims, which previously triggered the US dollar rally described in the article.
The US dollar rose sharply against the Japanese yen, shooting to 101.21 yen and passing the 100-yen mark for the first time in four years, reflecting the broader strength of the greenback that weighed on the Australian dollar.
The article highlights growing downside pressure on the Australian dollar driven by a stronger US dollar, RBA policy changes, falling commodity prices and weak China data. Everyday investors should be aware that these macro factors can push the AUD toward parity and potentially trigger sharp sell-offs, so monitoring central bank commentary, US economic reports and commodity trends is important for managing currency risk.
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