THE Australian dollar slid broadly yesterday as a series of disappointing earnings in the US on Friday pushed Asian equities into retreat.
At the close, the dollar was trading at US86.81c, down US0.84c from Friday's close of US87.65c.
Australian bond yields fared slightly better than the currency, as a key speech from Reserve Bank of Australia governor Glenn Stevens due today had traders in a holding pattern.
After the US earnings season started so robustly at the beginning of last week, sentiment reversed on Friday as reports from Bank of America, Citigroup and General Electric failed to match expectations. The reports pushed stocks lower across the globe, with the highly correlated Australian dollar falling in lock step.
Still, Callum Henderson, head of foreign exchange strategy at Standard Chartered in Singapore, said part of the broad drop in the Australian dollar had more to do with short-covering and could lend itself to a bounce back.
"Thursday and Friday saw significant buying of euro and some other G10 currencies, that's why the Australian dollar and Kiwi have underperformed so sharply," he said. "But once this massive short squeeze is out of the way, people will refocus on the fundamentals."
On a technical basis, National Australia Bank strategists noted that the Australian dollar was now on the precipice of a slide against the US dollar. The cross failed to move above US88.9c during its earlier monthly uptrend, and US85.75c was the next level to focus on, they said.
"A daily close below that will give further confirmation that this is stuck in a massive US80.66-US88.9c trading band," NAB said. Trading in the rates market was relatively quiet as the three-year September contract rose two ticks to 95.38 and the 10-year bond lost one tick to 94.87.
In the past few sessions, bond yields in Australia have been particularly dampened by US earnings reports, although Peter Jolly, head of research at National Australia Bank, said yields were now likely to rebound.
"We've got yields down near the lows in Australia but I think we're running into a series of factors that will support yields at these levels," said Mr Jolly, highlighting the potential lift from Mr Stevens's speech today, as well as the release of minutes from the central bank's last meeting, also set for today.
Aside from today's developments, Mr Jolly said a July 28 reading of Australia's second-quarter consumer price index was "the most important thing for near-term monetary policy".
