The Australian dollar dropped more than two US cents overnight as fears rise over the US economy and the European sovereign debt crisis deepens.
US stocks also fell, down more than four per cent and European stocks fell over three per cent
At 0700 (AEST) on Friday, the Australian dollar was trading at 104.63 US cents, down from 106.89 cents on Thursday.
Since 1700 (AEST) on Thursday, the local unit traded between 104.55 US cents and 106.89 cents.
Overnight, the European Central Bank (ECB) offered extra help to fight the eurozone debt crisis after a warning that countries such as Italy could now be threatened.
Meanwhile, the US Labour Department reported that weekly claims for unemployment benefits remained at a high of 400,000 last week, raising fears of a double-dip recession.
ANZ Banking Group senior markets dealer Alex Sinton said currency and equities markets fell overnight and there wasn’t anybody who was exempt.
He expects the negative tone to continue when Asian markets open.
“There are all sorts of words being used to describe currency markets today. You can throw in descriptive works like panic or fear. The reality is we are having a corrective move,” Mr Sinton said from Auckland.
“You are getting rebalancing, you are getting recognition of the reality, which is the poor US economic data.
“The European situation is not helping either. It’s an added weight on things.
“The Dow Jones is off 11.5 per cent from this year’s highs, so it’s a massive move, and there was a four per cent fall overnight.”
The Reserve Bank of Australia (RBA) will release its Statement on Monetary Policy on Friday morning.
It comes after the RBA kept the cash rate steady at 4.75 per cent at its board meeting on Tuesday.
Although the reserve bank was expected raise the cash rate sometime this year because of high local inflation, it made no move on Tuesday because of uncertainty in global financial markets.
Mr Sinton said he would be watching to see if Friday’s RBA statement removes any reference that the cash rate could go up.
On Friday night (AEST), US non-farm payrolls – the key indicator of the unemployment rate – will be released for July.
