The Australian dollar has opened the new trading week below the 73 cent level, leaving it at lows not seen in six months.
First, here’s the scoreboard as at 7.40 am AEDT:
- AUD/USD 0.7299 , -0.0005 , -0.07%
- AUD/JPY 86.09 , 0.25 , 0.29%
- AUD/CNH 5.0829 , 0.0131 , 0.26%
- AUD/EUR 0.6991 , 0.0018 , 0.26%
- AUD/GBP 0.5848 , 0.0022 , 0.38%
- AUD/NZD 1.0451 , 0.0027 , 0.26%
The weakness this morning followed a significant move on Friday evening where the AUD/USD slid to as low as .7260 on the back of renewed geopolitical concern in the South China Sea.
China seized an underwater US drone, triggering a bout of volatility in markets which weighed on both the Aussie and Kiwi dollars.
Hawkish remarks from several US Federal Reserve members also supported US bond yields and, as a consequence, the US dollar.
Whether the recent weakness in the Aussie persists, or intensifies, will likely be determined by the release of Australia’s mid-year economic and fiscal outlook (MYEFO) at midday AEDT, says Ray Attrill, global co-head of FX strategy, at the National Australia Bank.
“The main event is today’s MYEFO, expected at midday,” he wrote on Monday morning.
“A downgrade by Standard and Poor’s to Australia’s AAA rating remains very likely by mid-2017 with, in NAB’s view, a 50:50 chance it happens this week following the MYEFO.”
Attrill says a downgrade to Australia’s sovereign rating would flow more or less automatically into one-notch downgrades for the big banks and AAA state governments.
While, in his opinion, a one-notch downgrade has largely been factored in by markets already, Attril says that a downgrade, should it arrive soon after the MYEFO is delivered, will almost certainly put pressure on the Aussie dollar.
Outside of the MYEFO, Japanese trade and Chinese house price data for November will also be released on Monday.
Neither release will meaningfully impact the Aussie.
Later in the session, Janet Yellen, US Federal Reserve chair, will also speak on the state of the US labour market.