The Australian dollar tumbled for a 2nd consecutive day today which began after yesterday’s Fed monetary policy statement where the question of further rate rises in the US was on the agenda.
At 6.52pm (GMT) the Aussie dollar was trading at US74.00c down from US74.20c in yesterday’s trading.
Fed president Janet Yellen noted yesterday in a speech that inflation in America was close to its target which led many analysts to believe that a June rate hike was a strong possibility, which sent the Australian dollar spiralling downwards and racking up its biggest one day fall since Donald Trump became president.
Further rate rises in the US are expected to hurt the local currency as the difference in interest rates between the US and Australia subside, lessening the attractiveness of the carry trade,
Added to the woes overnight was the huge fall in commodity prices with Iron ore falling by more than 7 percent before trading was halted to stop the carnage.
“We do put weight on the narrowing interest rate premium, but I’d place more emphasis on what happens to commodity prices,” said Paul Dales, chief Australia & New Zealand economist at Capital Economics.
“As it happens, both these influences are pointing in the same direction.”he added
With commodity prices expected to fall further, the Aussie dollar is likely to follow it and just how far it will fall is anybody’s guess,
"A break of the US$0.7400 level will send the Aussie longs running for the exit and could add more fuel to the downside momentum," said Stephen Innes, a senior trader at OANDA.