Against the US dollar, the Australian dollar fell on Friday to within 0.1 percent of October’s low, a break of which will take the currency to its lowest level in more than 2 ½ years. Investors dumped the risk-sensitive Aussie after heavy selling in equities markets and as a US government shutdown became increasingly likely.
The Australian dollar ended last week buying only 70.3 US cents, near to long-term lows, after investors became increasingly risk averse.
With US stocks falling faster than in any week since 2011, and with perceived threats to global growth increasing, not to mention a partial shutdown of the US government taking effect, investors sought the safest assets they could get their hands on, which above all was the Japanese yen.
Against the yen—the FX world’s premier safe haven—the Australian dollar plunged to levels not seen since November 2016, at 78.16 yen.
Against the euro, although the Aussie remains 1 percent higher than 2018 lows, it is now worth 5 percent less than it was on December 1st, at just 0.619 euros.
With conditions as they are, some in the market speculate that the next move by the RBA will be to cut interest rates, rather than hike, which had been a foregone conclusion not too long ago. Bond markets have adjusted accordingly to reflect these expectations, with the Australian 10-year cash yield falling to 2.378 percent last week—the lowest since mid-2017.
Rather than finding support at current levels, traders suggested on Friday that another break lower in Aussie exchange rates was likely in the coming days and weeks.
“I’m bearish [AUD] into year-end,” a Scotiabank analyst said.
“Selling the [AUD] rallies continues to work . . . and I don’t see that changing in the short term,” wrote FX Empire’s Christopher Lewis.
The threat of a proxy war between the US and Iran in Iraq has pared back some of the recent gains of “risk-on” currencies.
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