The Aussie dollar hit a fresh 6-year low of 0.7355 last night after the Bank of Canada eased rates by 0.25% and US Fed chair Janet Yellen confirmed US rates will rise this year.
Yellen will get most of the headlines this morning for her call as the catalyst for the big drop in the Aussie. In her testimony before Congress, Yellen said “economic conditions likely would make it appropriate at some point this year to raise the federal funds rate target, thereby beginning to normalize the stance of monetary policy”.
That in itself was enough to see Aussie dollar selling. But the big selling, and why the Aussie dollar underperformed the move by the euro, which only fell around 0.5% overnight, was the interest rate cut in Canada.
Once the BoC made the announcement that it was cutting rates from 0.75% to 0.5%, the dollar bloc – the Aussie, Kiwi and Canadian dollar – really got creamed.
The Kiwi, which had a dairy auction last night, is off 1.86% to 0.6592, the CAD is down 1.47% with the USDCAD (inverse of CAD moves) up at 1.2905. In contrast, the Aussie held support at 0.7355 overnight and at 0.7377 is off a slightly better than peer group 0.97%.
Either way it’s still a fresh 6-year low and as the Commonwealth Bank’s forex strategy team highlighted yesterday, the outlook has darkened for the Aussie dollar.