Against the backdrop of a rising US dollar and a spike in US bond yields, risk aversion took hold of global financial markets driving equity markets, and the Australian dollar lower through the second half of last week.
During the preceding fortnight, the Aussie had tried to regain a foothold above 73 US cents but ultimately failed to do so due to a lack of positive trade-talk developments, a somewhat hawkish Fed reminding investors that there are more hikes to come through 2019 and growing emerging market concerns.
AUDUSD closed down around 2.50% for the week, falling to multi-year lows below 0.7050 – trading at levels not seen since early 2016. With further deterioration in risk sentiment, many of the major financial institutions have lowered their year-end forecasts, calling for the Aussie dollar to challenge 2016’s low at 68 US cents.
Data flow out of the US has been running hot recently, ratcheting up the expectations for the number of US rate hikes for 2019. With a number of Fed speakers expressing their views on the US economy last week, their voice was a unified one. The US economy is on very solid footing and whilst inflationary pressure still remains sluggish, expectations are that inflation will pick up and sustained gradual rate hikes necessary.