The Australian dollar came under strong and sustained selling pressure, falling to 63.13 US cents earlier in the day.
The Australian dollar is under strong selling pressure
Australian Dollar Weakness Comes as US Dollar Soars
Economists warn that the dollar risks falling further as global interest rates rise.
It last reached this level late last year – reaching a low of 61.89 US cents on October 14, 2022 – after spending most of 2023 above 66 US cents.
AMP chief economist Shane Oliver said the “risk” is that the Australian dollar falls into the 50s against the greenback in the near term.
He said concerns about the Chinese economy and the global economy as a whole were weighing on the local currency.
“The trend is still downward (for the Australian dollar),” Dr Oliver said.
He added that foreign exchange markets were waiting for the dollar to cross the 62 US cents mark.
In this case, he predicted that the dollar would be likely to fall further, to 55 to 58 US cents.
The dollar fell more than 1 percent overnight, but selling continued in Asian trade this afternoon when the Reserve Bank decided to keep its key rate at 4.1 percent.
“(The Australian dollar) came under further pressure as the RBA kept rates unchanged for a fourth consecutive month,” Angus Coote, executive director of Jamieson Coote Bonds, told The Drum.
“The RBA’s wording in the statement following the announcement was very similar to previous months, suggesting that rates could be held in place from now on.
“Very simplistically: given the interest rate differentials between Australia and the United States, people will buy the (US dollar) for the yield (yield) advantage it offers over to Australia.
“The RBA spot rate is 4.10 percent (while the Federal Reserve funds rate) is 5.375 percent.”
The value of the Australian dollar is influenced by global investor sentiment, the price of commodities (including iron ore and oil) and each country’s different interest rate levels.
What Mr Coote is saying is that the perception among international investors that US bonds will offer more attractive returns in the future is leading currency traders to sell Australian dollars and buy US dollars to take advantage of these higher yields.
It’s unclear when this dynamic will change.
Economists also warn that a significant fall in the Australian dollar by more than 10 per cent would put further upward pressure on inflation.
This is because it costs businesses more to buy imported products to sell here in Australia – a cost they can pass on to their customers in the form of higher prices.