The Australian dollar just took its biggest hit in nearly 5 years

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Undermined by the RBA decision to cut rates on Tuesday to a fresh record low, a rebound in the US dollar and significant falls in global commodity prices such as crude oil and iron ore, the Australian dollar tumbled in overnight trade, finishing the session nursing a loss of 2.34% against the US dollar.

It was the largest one-day percentage decline recorded since September 22, 2011 — nearly five years ago.

As at 8am AEST, the AUD/USD buys .7482, nestled at a level where it has found buying support in the past.

AUD/USD Daily Chart

“AUD/USD continued to adjust lower overnight following yesterday’s RBA decision to cut the cash rate by 0.25bps to 1.75%,” said Elias Haddad, FX strategist at CBA.

“The USD recovered strongly overnight after reaching 16-month low early during the European session. Heightened risk aversion sparked by global growth concerns supported the USD rally.

“Comments by non FOMC voters John Williams and Dennis Lockhart warning that a June Fed funds rate hike is a ‘real option’ also underpinned the USD rally.”

Despite the recent weakness, the CBA retains the view that AUD/USD will finish the year buying .7800 before extending its rally to .8000 by the middle of next year.

“We believe the improvements in the Australian economy, recovery in commodity prices and the peak in the USD will support the AUD/USD over this time frame,” said Haddad. “Nevertheless, in the short-run, as the market continues to react to the RBA further short-term declines in the AUD/USD are possible.”

After the chaos of Tuesday’s session, both the domestic and regional calendars are devoid of major market moving events today, likely ensuring modest market moves.

Domestically, markets will receive the latest services PMI report from the Ai Group while regionally New Zealand unemployment data for the first quarter will also be released.

With Japanese markets remaining on holiday, movements in the USD/JPY — something that has tended to move in an inverse direction to the AUD/USD of late — along with the performance of Chinese markets, may be influential on the Aussie today.

Here’s the current Aussie dollar scoreboard.

  • AUD/USD 0.7482 , -0.0001 , -0.01%
  • AUD/JPY 79.94 , 0.18 , 0.23%
  • AUD/CNH 4.8648 , -0.0012 , -0.02%
  • AUD/EUR 0.6507 , -0.0001 , -0.02%
  • AUD/GBP 0.5148 , 0 , 0.00%
  • AUD/NZD 1.0815 , -0.0005 , -0.05%

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