The Australian dollar has fallen sharply

Photo by Yuli Seperi/Getty Images

The Australian dollar fell sharply in overnight trade, sinking back to the lows struck at the depths of trade on Friday.

After falling to as low as .7320 in US trade, the AUD/USD eventually closed the session buying .7322, representing a decline of 1.8% on Friday’s closing level.

As at 7.50am AEST, the AUD/USD currently buys .7330.

Fallout from the UK Brexit vote, as was the case on Friday, was the chief catalyst behind the steep decline, not only in the Aussie but other risk assets.

“Risk assets took another pounding overnight as the UK decision to leave the EU continues to rock financial markets,” said Rodrigo Catril, currency strategist at the NAB.

“Equity markets on both sides of the Atlantic ended the day sharply lower, the British pound fell another 3.6% and demand for safe haven assets boosted gold and dragged core global yields lower.”

Catril suggests that UK markets “continue to drive global sentiment”, noting that a “lack of UK political leadership at a time of market disarray is doing little to reassure markets.”

Yes and yes, in my humble opinion.

As was the case on Monday, the Asian economic calendar is devoid of any significant economic releases on Tuesday, ensuring markets will likely be driven by sentiment and headlines towards Brexit yet again.

Catril suggests that volatility is likely to increase in the latter parts of the session as a meeting of European leaders gets under way in Brussels.

“The two day EU Leaders summit commencing later today has the potential to be a weighty source of market volatility,” says Catril.

“If recent headlines are any guide, some leaders will no doubt take the opportunity to remind the UK that exit negotiations will be tough. Others are likely to urge the UK for a quick ‘divorce’ while the message of unity within the union is also likely to be touted.

“All that said, hopefully we also get some detail on what steps the EU plans to take in order minimise the negative ramifications from Brexit, both in terms of its economic as well socio-political impact.”

Outside of the EU leaders summit, the People’s Bank of China’s USD/CNY fix at 11.15am AEST also carries the potential to generate modest levels of intraday volatility.

On the domestic front, markets will also receive the latest ANZ-Roy Morgan weekly consumer confidence reading.

While not a market-mover by any stretch, having hit a two-year high previously, many will use the index as a gauge on how the UK Brexit vote has impacted sentiment levels in households.

A significant fall will only help to bolster the growing view that an additional rate cut from the RBA, most likely in August, is coming.

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