A perfect storm forms for the Australian dollar

It’s almost the perfect storm for the Aussie dollar at the moment.

Commodities crashing, stocks selling off, confidence in the Chinese economy falling sharply and the Federal Reserve increasingly looking like it will begin its tightening cycle this September.

Add in a still uncertain economic outlook for Australia and you have all of the key drivers I watch for the Aussie pointing downwards.

AUDUSD Weekly – (Go Markets, MT4)

So it should be no surprise then that overnight the Aussie dollar is back at six-year lows against the US dollar. It’s also losing ground against the New Zealand dollar, Yen, Sterling and Euro.

The question for traders however is whether the environment is such that the Aussie is going to continue to fall and stay lower. Or whether most of the bad news is baked into the cake.

If they follow Goldman Sachs line of thinking that there are 3 self-reinforcing themes driving the big sell-off in commodities it’s hard not to see the implications for Australia, the Australian economy and the Aussie dollar.

Rob Rennie, Westpac’s head of strategy, pointed out yesterday that “the risks of seeing AUD sub 0.70 for a period are higher than consensus might acknowledge.”

Whether or not it stays there is another matter Rennie says. But, he does highlight that if the big global forex punters get busy and we see “a return to the kind of aggressive short speculative positions seen late 2013/ early 2014” the Aussie will head lower.

That makes this 0.7250/60 zone important for many traders. If it breaks we could see more selling. It has to break and hold though first.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.