The Australian dollar has been poleaxed

Image: Ian Walton/Getty Images.

The Australian dollar was poleaxed overnight, tumbling lower against all major currencies aside from the Japanese yen.

Here’s the scoreboard as at 7.40am in Sydney:

  • AUD/USD 0.7387 , -0.0096 , -1.28%
  • AUD/JPY 84.47 , 0.38 , 0.45%
  • AUD/CNH 5.1097 , -0.0626 , -1.21%
  • AUD/EUR 0.6969 , -0.0057 , -0.81%
  • AUD/GBP 0.5904 , -0.0086 , -1.44%
  • AUD/NZD 1.0422 , -0.0075 , -0.71%

While there were many factors behind the Aussie’s decline, the main factor was renewed strength in the US dollar following OPEC’s decision to cut crude production over the next six months to 32.5 million barrels per day, something that saw US bond yields lift on the back of firming inflation expectations.

“Higher US treasury yields are reducing the attractiveness of the relatively high-yielding AUD Australian bonds,” said Richard Grace, chief currency strategist at the Commonwealth Bank.

However, that wasn’t the only factor behind the Aussie’s move, says Grace.

“Overseas participants also paid more attention to the weakness in Australian building approvals data, which showed multi-unit building approvals -23.5% (YoY), confirming the downturn in construction activity,” he said.

A stronger than expected ADP National Employment report for November in the US, pointing to another strong US non-farm payrolls report when it is released on Friday, along with an upbeat Beige Book on US economic conditions released by the US Federal Reserve, also helped to boost the US dollar further undermining the Aussie.

Iron ore spot prices — Australia’s largest export by dollar value — also slumped by 6.8%, according to Metal Bulletin, taking its decline to 10.8% over the past two days.

This, understandably, was a negative for the Aussie as well.

AUD/USD Hourly Chart

Whether the weakness persists into Thursday trade will likely be determined by the release of major economic data both in Australia and abroad.

In Australia, markets will receive Q3 private business capital expenditure (CAPEX) figures at 11.30am AEDT, the latest piece of Australia’s Q3 jigsaw puzzle.

“Today’s Q3 CAPEX survey will provide us some clues on business investment, but it looks like next week’s Australian Q3 real GDP report will be very weak”, says Grace.

This report has a tendency to move the Australian dollar, particularly the outlook for business investment.

Aside from CAPEX, markets will also receive Australian house price data for November from CoreLogic at 10am AEDT along with Australian manufacturing PMI at 9.30am AEDT.

Regionally, all eyes will be on the release of manufacturing and services PMI figures from China that will arrive at Midday AEDT.

For the manufacturing report, economists are looking for a reading of 51.0 in November, down from 51.2 in October.

Later in the session, a raft of manufacturing PMI reports will be released in the US and Europe which will almost certainly be influential on the Aussie.

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