The Australian dollar fell heavily overnight

Photo by Alex Livesey/Getty Images

After ripping higher in earlier trade, the Australian dollar went hard into reverse in European and North American trade, weighed down by a sharp sell-off in US stocks, softness in commodity prices and news of another terrorist attack, this time in Barcelona.

The end wash-up is that the AUD/USD is now back below the 79 cent level this morning after hitting a high of .7962 earlier in the session.

AUD/USD 0.7882 , -0.004 , -0.50%
AUD/JPY 86.36 , -0.92 , -1.05%
AUD/CNH 5.2690 , -0.0292 , -0.55%
AUD/EUR 0.6723 , -0.0008 , -0.12%
AUD/GBP 0.6126 , -0.0018 , -0.29%
AUD/NZD 1.0817 , -0.0013 , -0.12%
AUD/CAD 0.9996 , -0.0001 , -0.01%

After rallying preemptively ahead of the release of Australia’s July jobs report, the Aussie’s latest rally ran out of steam in Asia, sinking lower in the latter parts of the session as risk aversion took hold.

Ray Attrill, head of FX strategy at the National Australia Bank said the initial sell-off was sparked by renewed political concerns in the US, compounded later in the session by news of a terrorist attack in Barcelona, Spain.

“The initial catalyst for the risk-off tone was concern and rumour that Trump’s main economic adviser Gary Cohn was set to quit in disgust at the President’s response to the Charlottesville racial violence. Were that to eventuate, it would be seen as driving an even bigger nail into the coffin of hope for tax reform,” he said in his morning note.

“While the White House has issued a denial of any such intent the tragic news of another terror attack in Europe, this time Barcelona, has compounded prevailing negative sentiment.”

Although continued political uncertainty in the US would normally act to weaken the US dollar, that didn’t eventuate overnight due to a slide in the euro following the release of the minutes of the ECB’s July monetary policy meeting which conveyed renewed concern over the common currencies recent strength.

“While it was remarked that the appreciation of the euro to date could be seen in part as reflecting changes in relative fundamentals in the euro area vis-a-vis the rest of the world, concerns were expressed about the risk of the exchange-rate overshooting in the future,” the minutes read.

That saw the euro slide heavily, putting a bid in the US dollar as a consequence. That in turn acted to weaken the Aussie, contributing to its slide during the session.

Reflective of the risk-off tone on Thursday, the Aussie lost most ground against the safe-haven Japanese yen, losing over 1%.

AUD/USD Hourly Chart

After a stacked data calendar in recent days, Friday’s session is devoid of major events, suggesting that US politics and investor sentiment will continue to drive the movements in the Aussie.

Chinese new house price data for July will be released at 11.30am AEST although it’s unlikely to generate much of a reaction across markets.

Later in the session, the one major highlight comes from Canada with the release of CPI data for July. This will likely impact the loonie given financial markets are around 80% priced for another rate hike from the Bank of Canada in the December quarter.

The preliminary University of Michigan consumer confidence report from the US will also be released.

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