The Australian dollar just posted its largest fall since Brexit -- and there might be more to come yet

Photo by Carsten Koall/Getty Images

The Australian dollar remains under pressure in early Asia trade on Monday.

The AUD/USD currently buys .7540, almost unchanged from Friday’s closing level of .7538. In the previous two sessions it lost 1.75%, the largest two-day percentage decline seen since the UK Brexit Referendum, most of it coming on Friday.

AUD/USD Daily Chart

Like the movements in stocks, bonds and commodities, the substantial decline in the Aussie on Friday — some 1.34% — was driven by remarks from a leading US Federal Reserve that hinted that a September rate increase from the FOMC may not be so implausible after all.

“Boston Fed President Eric Rosengren sent risk markets into a tail-spin at a breakfast presentation in Massachusetts, saying he backed gradual interest rate hikes and that waiting too long meant risks some asset markets like commercial real estate ‘become too ebullient’,” said Ray Attrill, global co-head of FX strategy at the National Australia Bank.

“Rosengren’s comments were nothing new compared to remarks he’d made last month, but the fact they were repeated after the intervening US data run (two weak ISM surveys and a so-so August employment report) marked them out as significant.”

As a result of Rosengren’s remarks and speculation that a hawkish shift may be coming from once-dovish Fed officials, the US dollar rallied hard, weighing on the Aussie.

Remarkably, for all the carnage seen in stocks, commodities, currencies and longer-dated sovereign debt, the odds of a rate hike from the Fed barely moved with OIS pricing for September rising from 27% to 29% and that for December ticking up to 72% from 70%.

Jumping at shadows, comes to mind.

With no major economic data or events scheduled in Asia, Europe or the US on Monday, speculation over what the Fed may do next will continue to dominate movements in the Aussie, and asset markets in general.

In particular, Attrill believes that most attention will be on a speech from Fed governor Lael Brainard that will be delivered later on this evening, marking the last official commentary that markets will hear from the Fed until its September 21 meeting.

“Fed Governor Lael Brainard speaks tonight/early Tuesday morning our time and is the last scheduled speaker before the lock-down starts,” he notes.

“Brainard has marked herself out as a dove with particular sensitivity towards the level of the dollar as a constraint of the need to lift interest rates. This should be a very market sensitive speech, in particular if she displays any sign of support for a September rate rise.”

Alongside Brainard’s speech, markets will also hear from Dennis Lockhart and Neel Kashkari, the presidents of the Atlanta and Minneapolis Fed’s respectively.

Not much for Asia to concentrate on then, suggesting that movements in USD/JPY — often influential on the broader US dollar index in Asia — could move the Aussie dollar today.

Here’s the current scoreboard as at 7.45am AEST.

  • AUD/USD 0.7540 , 0.0002 , 0.03%
  • AUD/JPY 77.32 , -0.09 , -0.12%
  • AUD/CNH 5.0461 , -0.0014 , -0.03%
  • AUD/EUR 0.6709 , -0.0001 , -0.01%
  • AUD/GBP 0.5682 , 0 , 0.00%
  • AUD/NZD 1.0288 , -0.0003 , -0.03%

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