The Australian dollar took another hefty hit overnight, falling to a fresh six-year low as Fed chair Janet Yellen signalled the US central bank could lift interest rates as early as September.
Adding to pressure for commodity currencies, Canada cut its benchmark interest rate for the second time this year to shield the country’s economy from the impact of a dive in the oil price hurt.
The Canadian rate cut, which took the market a bit by surprise as it was seen as only a 50-50 chance,
The Aussie tumbled in the wake of the Loonie’s fall, and later extended its drop when Ms Yellen in a parliamentary testimony reinforced market expectations for a US interest rate hike, possibly as soon as September.
The Aussie fell as low as 73.54 US cents overnight, a level it hasn’t traded at since May 2009, before recovering slightly to fetch 73.79 US cents in early trade on Thursday.
The Federal Reserve chair told Congress that the Fed remains poised to raise interest rates this year, as labour markets were steadily improving, while turmoil in Greece or Chinese equity markets was unlikely to knock the US economy off track.
Canada’s rate cut overnight was the second to the central bank’s benchmark interest rate this year.
Canada’s rate cut overnight was the second to the central bank’s benchmark interest rate this year. Photo: Reuters
The testimony gave greenback bulls several reasons to rejoice, said BK Asset Management managing director Kathy Lien.
“Not only did Yellen confirm that rates will rise this year but it is her view that waiting too long would mean rates would have to rise at a faster pace later,” she said. “She prefers to start earlier to allow for a more gradual rate path. As a result every FOMC meeting this year including September is a live meeting at which the central bank could raise rates.”
In a further blow for commodity currencies, dairy prices plunged further in the benchmark New Zealand auction this morning, diving 10.7 per cent to $US2082, their lowest since July 2009. The Kiwi dollar was duly pummeled, dropping nearly 2 per cent to below 66 US cents, also multi-year lows.
News wise, nothing bad has happened in or to Australia since last night, yet the Aussie dollar has fallen by almost a full cent overnight, said NAB co-head of forex strategy Ray Attrill.
“In truth, it is a case of guilt by association, following a pummelling meted out to other ‘commodity currencies’, notably the Canadian dollar after the Bank of Canada cut its policy … and the NZD took a fresh hit from another very poor Global Dairy Trade auction,” he said.