The Australian dollar got hit hard twice overnight

Picture: ViralHog/YouTube

The Australian dollar fell overnight, undermined by another bout of US dollar strength and a decision from rating’s agency Moody’s to downgrade the long-term credit rating of Australia’s big four banks announced in early European trade.

However, while it softened against the greenback, it gained modestly against the crosses on the back of strength in iron ore and base metals prices, along with strong gains in equity markets.

Here’s the scoreboard as at 8am AEST.

AUD/USD 0.7597 , 0.0003 , 0.04%
AUD/JPY 84.75 , 0.07 , 0.08%
AUD/CNH 5.1878 , 0.0038 , 0.07%
AUD/EUR 0.6813 , 0.0003 , 0.04%
AUD/GBP 0.5964 , 0.0002 , 0.03%
AUD/NZD 1.0508 , 0.0018 , 0.17%

Richard Grace, chief currency strategist at the Commonwealth Bank, said that the Aussie initially came under selling pressure following Moody’s decision to downgrade the long-term credit ratings of 12 Australian lenders, including the big four bank’s.

“Moody’s downgraded the banks by one notch to Aa3 citing the tail risk of a sharp housing downturn in the midst of high housing sector debt,” he says.

The group also changed the ratings outlook for Australia’s big banks from negative to stable, reflecting that another near-term downgrade is unlikely.

The selling pressure was then compounded further by hawkish commentary from Bill Dudley, New York Fed president, who said that while US inflation is a little lower than what he would like, the US economic expansion has a long way to go.

That helped to lift US bond yields and saw the US yield curve steepen a fraction, helping to bolster the US dollar as a consequence.

As seen in the 5-minute tick chart below, that also weighed on the AUD/USD cross.

After a slow start to the trading week, the economic calendar picks up a touch today, although it’s hard to see any of the releases creating a long-lasting impact on the Aussie.

In Australia, the weekly ANZ-Roy Morgan consumer confidence report will be released at 9.30am AEST, with the ABS’ Residential Property Price Index for the March quarter following two hours later.

Neither are likely to have an impact on the Aussie.

At 9am AEST, Charles Evans, Chicago Fed president, will also speak from New York. Markets will be looking for any commentary on whether he sees the need for another rate increase this year given recent weakness in US inflation data.

If there is to be any significant market movement, it will likely come with the release of the minutes of the RBA’s June monetary policy meeting at 11.30am AEST.

While there’s always room for surprise, many of the views communicated at this meeting are now looking slightly dated, especially towards the labour market given the strength in Australia’s May jobs report released last week.

“We don’t expect any surprises,” said Rodrigo Catril, currency strategist at the National Australia Bank. “The Meeting produced another ‘no change’ decision on the cash rate as the Bank weighs up an economy still growing within its potential against lingering growth concerns over the housing market.”

Continuing the theme established in Asia, central bank speak from around the world will remain the focus for traders later in the session.

In the US, markets will hear from Stanley Fischer and Eric Rosengren of the Fed, while in the UK Bank of England governor Mark Carney will also be in action.

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