The Australian dollar was slammed lower on Monday as fears for the health of the global economy slugged commodity prices and fuelled expectations local interest rates will have to be chopped to support growth at home.
Bond futures extended their safe haven surge on intense speculation the Reserve Bank of Australia (RBA) will cut the 7.0 percent cash rate by an aggressive 50 basis points at its monthly policy meeting on Tuesday, and ease further before year-end.
"The RBA has to do something pretty big to offset the tightening in markets, and 50 basis points is really just the start," said Tony Morriss, senior currency strategist at ANZ. "On top of that you have risk aversion and the broader concern about world growth and what that means for commodity prices," he added. "It's started what looks like a whole new phase of Aussie weakness."
Australia is a major exporter of resources, so any slowdown in global demand would be a stiff headwind for the economy. The Aussie dollar dived as deep as $0.7445 at one stage, a drop of almost 4 percent from $0.7737 late in New York on Friday and the first break under 75 cents since October 2006.
Traders reported waves of stop-loss selling on the break of key chart support at $0.7675, a low from August last year, while Japanese investors dumped it for the safety of the yen.
The Aussie tumbled all the way to 76.60 yen, down nearly 5 percent from 81.45 late on Friday and at depths not seen since January 2005. The latest lurch lower brought the Aussie's losses in the last three months to more than 22 US cents and 26 yen as the intensifying credit crisis sent investors fleeing to the safety of the yen and short-term US Treasury debt.
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