The Australian dollar fell heavily overnight, hitting the lowest level since August 16.
Here’s the scoreboard as at 7.50 am AEST.
AUD/USD 0.7886 , 0 , 0.00%
AUD/JPY 88.5 , 0.00 , 0.00%
AUD/CNH 5.2288 , 0.002 , 0.04%
AUD/EUR 0.6686 , 0 , 0.00%
AUD/GBP 0.5858 , 0 , 0.00%
AUD/NZD 1.0935 , -0.0001 , -0.01%
AUD/CAD 0.9737 , 0.0005 , 0.05%
Having opened the session buying .7935, the AUD/USD started to slide in European trade, falling in unison with the euro as political uncertainty in Germany continued to weigh on the common currency.
As the largest component within the US dollar index, the euro’s weakness also led to broad-based strength in the greenback.
The dollar was given a further boost by renewed chatter about the prospect of US tax reforms, said Elias Haddad, senior currency strategist at the Commonwealth Bank.
“Expectations the Trump administration and senior Republicans lawmakers in Congress will unveil a stimulative tax reform plan over the next 24 hours is supporting a firmer USD,” said Haddad in his morning note.
“President Trump noted overnight the planned tax reform measures will cut taxes ‘tremendously’ for the middle class, lower the corporate tax rate and bring back trillions of dollars invested overseas.”
Alongside speculation surrounding tax reform, the US dollar also benefited briefly from remarks from Janet Yellen, US Fed chair, who suggested that the bank should continue to tighten monetary policy gradually in the period ahead despite weak inflationary pressures.
“Without further modest increases in the federal funds rate over time, there is a risk that the labour market could eventually become overheated, potentially creating an inflationary problem down the road that might be difficult to overcome without triggering a recession,” she said in an address to National Association for Business Economics.
She also said that it would be “imprudent to keep monetary policy on hold until inflation is back to 2%”.
That provided a brief boost the US dollar, seeing the AUD/USD fall to as low as .7857, the weakest level since mid-August.
Continuing the pattern seen in recent days, there’s absolutely nothing of note in terms of market-moving data in Asia, likely ensuring that gyrations in the Japanese yen — often influential on movements in the US dollar index in Asia — along with those in Chinese commodity futures, will remain influential on the Aussie during the session.
Later in the session, Ray Attrill, head of FX strategy at the National Australia Bank, says that movements across broader financial markets will be driven by the US tax plan announced by Trump.
“While equity markets may have incorporated some modest expectation of corporate tax reform into market pricing, we doubt that bond markets or the US dollar have, suggesting much more upside for yields and the dollar should tax reform hopes take a significant step higher,” he said in his morning note.
Greg McKenna, chief market strategist at AxiTrader, said that Aussie could face “substantial downside” should the modest recovery in the US dollar go up a gear in the days ahead.
“I expect that to be the case … [with] a rally of 2-3% from here for the US dollar index likely. That would suggest an AUD/USD which tests 0.7740/50, perhaps even 0.7650,” he says.
Outside of the US tax plan, markets will also cast a passing eye on the US durable goods orders report for August. An increase of 1% is expected after tumbling 6.8% in July. Ex aircraft orders, core orders are tipped to rise 0.2% following a 0.6% advance reported previously.
On the Fed front, James Bullard and Lael Brainard are both scheduled to speak during the session.
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