The Australian dollar sinks to new lows

AMERICA’S CUP TV/AFP/Getty ImagesIn this picture from television, crew members of the America’s Cup yacht oneAustralia are pulled aboard a rescue craft as the bow and stern rise up before the boat sinks in 500 feet of water 05 March. The accident took place as oneAustralia was racing Team New Zealand. The hull buckled amidships and the boat folded in on itself. All 17 crew members were rescued. It is the first time in the 144-year history of the America’s Cup that a yacht has sunk.
  • The Australian dollar fell to the lowest level since February 2016 on Thursday.
  • Higher bond yields, steep declines in stocks and some commodities as well as renewed geopolitical jitters ensured the Aussie remained under pressure.
  • Australian retail sales for August will be released today, as will US non-farm payrolls for September.

The Australian dollar continues to slide, hitting fresh multi-year lows against the greenback on Thursday.

Here’s the scoreboard at 7am in Sydney.

AUD/USD 0.7078 , -0.0024 , -0.34%
AUD/JPY 80.65 , -0.69 , -0.85%
AUD/CNH 4.8799 , -0.0124 , -0.25%
AUD/EUR 0.6146 , -0.004 , -0.65%
AUD/GBP 0.5435 , -0.0053 , -0.97%
AUD/NZD 1.0926 , 0.0028 , 0.26%
AUD/CAD 0.9147 , 0.0005 , 0.05%

With the exception of other commodity currencies such as the New Zealand and Canadian dollars, the Aussie was hit hard again, undermined on this occasion by not only higher US bond yields but also widespread losses in stocks and commodities.

After falling over 1% on Wednesday, the AUD/USD shed another 0.35% during the session, briefly slipping below .7070, leaving it at the lowest level since February 2016.

Benchmark 10-year US bond yields rose to as high as 3.23% — another fresh seven-year high — while two-year yields also hit record highs, helping to keep the greenback bid against the Aussie on widening yield differentials.

On Thursday, the spread between US and Australian 10-year government bond yields hit 54.5 basis points, the largest on record.

In contrast to the prior session where stocks and commodity markets largely ignored the spike in yields, there was no such reaction on Thursday with stocks in Asia, Europe and North America all falling heavily while commodity prices — especially crude — also came under pressure.

A report from Bloomberg alleging Chinese industrial espionage at major US companies did little to help improve investor sentiment, raising concern it will only act to escalate tensions between the two economic and military powers.

Given that backdrop, it’s little surprise the Aussie dollar remained under pressure.

Investing.comAUD/USD Hourly Chart

Against the major crosses, the Aussie also fell hard against Japanese yen, euro and British pound, the former due to heightened risk aversion while the latter two were bolstered by renewed optimism towards Brexit negotiations.

Turning to the session ahead, there’s plenty of risk events out there for traders to navigate.

On the data front, Australian retail sales for August will be released at 11.30am AEST. Economists are looking for an increase of 0.3% following a flat result in July.

Given recent declines in home prices in many parts of the country, as well as signs that may be starting to impact new car sales, another soft retail report will undoubtedly raise some concerns over the current mindset of households.

Before that event arrives, the Australian Industry Group will also release its Performance of Construction Index for September at 8.30am AEST.

Later in the session, the main highlight comes from the United States with the release of non-farm payrolls data for September at 10.30pm AEST.

Markets expect payrolls to lift by 185,000 seeing the unemployment rate fall back from 3.9% to 3.8%. Perhaps of equal or more importance given the relevance to inflationary pressures in the future, average hourly earnings are tipped to lift by 0.3% over the month, down from 0.4% in August, seeing the year-on-year rate decelerate from 2.9% to 2.9%.

In the past, it’s been the wage and unemployment figures that have usually driven movements in financial markets.

While that will take centre stage in the second half of the session, traders will also have to contend with trade and unemployment data from Canada, German producer prices and factory orders as well as trade figures from the US and France.

Given the relatively quiet Asian session, movements post Australia’s retail sales report will likely reflect those in emerging markets across the region, particularly the offshore traded yuan.

With the US payrolls report arriving later in the day, and given the steep declines in the Aussie this week, there’s a clear risk the Aussie could edge higher should traders square their short positions ahead of this key release.

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