The Australian dollar slid with oil as the U.S. strengthened against all major commodity-exporting currencies overnight on Tuesday, slowly narrowing the divergence between the local unit and commodities.
At 07:00 local time, the currency was trading at 72.66 U.S. cents, down from 73.28 cents on Monday. It's not surprising the local unit was unable to sustain support overnight in the face of unrelenting commodity headwinds that saw oil slip 5 percent overnight while iron ore and base metals tumbled, National Australia Bank senior economist David De Garis said.
West Texas Intermediate and Brent crude prices have fallen 4.7 percent and 3.7 percent respectively since the Organization of Petroleum Exporting Countries meeting at the weekend failed to cut production and instead removed the production ceiling of 30 million barrels per day.
China's international trade data, to be released on Tuesday, is likely to add to the disappointment when traders are provided with an update to the demand side of the equation, the Commonwealth Bank of Australia said in their morning note, which will add further pressure on commodities and the Aussie dollar.
The Australian dollar is "likely to fall further as the recent divergence between commodity prices and AUD over the last few months gets closed," the bank said. The Australian dollar and commodity price divergence is heavily skewed to the upside, its largest for 2015, that has been built on the back of moves in the financial services space.
"But Australia"s terms of trade is dominated by commodity exports and the gap will have to close as central bank differentials filter out and currency fundamentals come back into play," IG market strategist Evan Lucas said. At 1140 local time, the Australian dollar was trading at 72.68 U.S. cents.
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