The Australian dollar slipped down overnight as the US dollar pushed to a six-month high.
“The Aussie looked pretty healthy early yesterday climbing back above 76 cents, but that changed very quickly with the change in outlook on interest rate in the US,” said Greg McKenna, chief market strategist at AxiTrader.
According to McKenna, the strong move of the greenback (that caused the fall in the Aussie dollar) started from the moment that Treasury bond futures opened during the Asian session yesterday at the highs (in yield terms) on Friday night.
“That reinforces the view that the outlook for interest rates is the key driver supporting the US dollar at the moment,”
“And that means there is an increasing acceptance that the US Fed will be raising rates in December. But it will be tested by the release of the minutes to the September FOMC meeting this week,” McKenna said.
It’s not only the Aussie dollar that was buffeted by the surging greenback. The Yen, the Pound, and Kiwi were also down around 0.3%.
Deputy governor McDermott from the Reserve Bank of New Zealand said rates will need to be cut which drove the Kiwi to a 4-week low and helped lift AUDNZD to a high of 1.0699.
Looking at the Aussie dollar directly the US dollar’s strength has a double whammy effect because part of the reason the S&P was lower and risk went off are concerns about a stronger US dollar.
“That is, there is some fear that it could act as a drag on earnings going forward for those companies that are exposed to its movements,” McKenna said.
Throw in the fact that a stronger US dollar also naturally weighs on commodity price and the Aussie finds itself down at 0.7535 this morning.
In the meantime, it’s fear and loathing in the reportage and research notes surrounding Brexit at the moment.
“While I strongly believe the collapse in the pound will eventually be self-curing for the economy, there is much water to flow under the bridge and it seems that the UK is talking itself into economic weakness in the wake of what increasingly looks like a hard Brexit,”
“So far spill-over effects remain negligible – but it remains something to watch,” McKenna said.
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