Risk assets were pummelled overnight, and the Aussie dollar wasn't immune

Photo by Scott Barbour/Getty Images

The Australian dollar had another huge reversal in overnight trade, rising to a fresh four-month high before giving back those gains and more in the latter parts of the session.

Heightened risk aversion — seeing US stocks log their first 1% decline since October last year — along with some steep declines in commodity prices, were the chief catalysts behind the Aussie’s decline, despite renewed US dollar weakness.

Here’s the Aussie dollar scoreboard as at 7.55am AEDT.

  • AUD/USD 0.7689 , -0.004 , -0.52%
  • AUD/JPY 85.91 , -1.08 , -1.24%
  • AUD/CNH 5.2838 , -0.0396 , -0.74%
  • AUD/EUR 0.7111 , -0.0085 , -1.18%
  • AUD/GBP 0.6160 , -0.0093 , -1.49%
  • AUD/NZD 1.0917 , -0.0035 , -0.32%

As it reveals, the Aussie struggled against not only the greenback but also the major crosses.

On what was an otherwise quiet news day, the abrupt spike in market volatility was put down to concerns that reforms previously announced by US president Donald Trump are stalling, creating doubt over the merits of the reflation trade that has powered risk assets higher — including the Aussie dollar — since he was elected in November last year.

“Investors were concerned that the Trump administration may not have enough votes to pass through reforms, particularly promised tax cuts,” said Gareth Aird, senior economist at the Commonwealth Bank.

Those concerns, along with tired-looking price action in many risk assets over recent weeks, appears to have prompted some investors to hit the sell button on riskier assets, including the risk-sensitive, commodity-linked Aussie.

As the daily chart shows below, the AUD/USD just can’t muster the energy to break convincingly through selling resistance layered above 77 cents, suggesting that the path of least resistance, at least for the moment, is lower rather than higher.

AUD/USD Daily Chart

After the fireworks in markets overnight, there is little on the economic calendar in Asia, likely ensuring that investor sentiment will be influential on the Aussie.

Japanese trade data for February will be released, as will the latest Westpac-MI leading index for Australia. Guy Debelle, deputy governor at the RBA, will also speak from 12.40pm AEDT.

There’ll be more than a few eyes on Chinese iron ore futures after they tumbled on Tuesday, along with the USD/JPY which many often look towards to gauge investor risk aversion.

The quiet economic calendar continues later in the session with US existing home sales and house price data the only major releases of note.

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