The Australian dollar is threatening to break below 73 cents as commodity prices tumble

Everyone needs some down time. Picture: Warner Bros

The Australian dollar continued to sink in overnight trade, hitting a session low of .7302 against its US counterpart before bouncing marginally into the close.

As at 7.45am AEST, the AUD/USD was buying .7312, down 0.6% on Monday’s opening level.

AUD/USD Daily Chart. Source: Investing.com

As opposed to recent sessions where the Aussie was pressured by heightened expectations for further interest rate cuts from the RBA, perhaps as soon as June, the catalyst for the overnight move was a steep decline in commodity prices, along with a renewed bout of US dollar strength.

“Reports that wildfires in Canada had moved away from key oil producing areas was cited as the major driver for the decline in oil prices,” said Rodrigo Catril, currency strategist at the NAB in his morning note.

“Metal and bulk commodities also had a bad night dragged lower by concerns over China‚Äôs economic prospect following disappointing trade figures over the weekend.

“Copper lost 2.6% overnight and iron prices fell 5.5%. The decline in iron ore was also not helped by an article from the Dalian exchange that it will introduce different transaction fees in order to strengthen market oversight and limit frequent short-term trading.”

Alongside the steep declines in energy, bulk and base metals prices, there were also significant falls in gold and silver which finished the Monday’s session nursing losses of 2 and 2.6% respectively.

As a commodity-linked currency, the Australian dollar was at the forefront of selling pressure.

With a relative dearth of domestic economic data on Tuesday, Catril suggests that “the AUD is more likely to be driven by global risk appetite, technical levels and key data releases offshore”.

From a technical perspective, analysts at the NAB suggest “a confirmed break below the 0.7300/20 would imply that the recent decline is sustainable and could herald a retest of the 70 cent mark”.

On the data front, Chinese consumer and producer price inflation figures for April will also be released, although recently these figures have not generated the same levels of intraday volatility seen in prior years.

Chinese new bank lending and aggregate financing figures, also for April, could also arrive at any point over the next few trading sessions.

Given the focus on Chinese commodity futures recently, the price action on the Dalian and Shanghai Futures Exhanges when they resume trade at 11am AEST may also be influential on the Aussie.

Here’s the current scoreboard.

  • AUD/USD 0.7312 , -0.0002 , -0.03%
  • AUD/JPY 79.28 , 0.06 , 0.08%
  • AUD/CNH 4.7829 , -0.0008 , -0.02%
  • AUD/EUR 0.6421 , -0.0003 , -0.05%
  • AUD/GBP 0.5075 , -0.0001 , -0.02%
  • AUD/NZD 1.0799 , -0.0003 , -0.03%

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