The Australian dollar has fallen sharply overnight as concerns grow over China’s economic outlook. The PBOC setting the currency’s reference rate at a weak level sends a shockwave through markets similar to August 2015 when China devalued their currency last time. The previous support level for the Australian dollar at 72 cents was no match for the overwhelming bearish sentiment with the A$ and before too long it will be relying upon support at the key 70 US cents level.
The 70 cents level has been significant for the last several months propping up the local currency and allowing it to move higher. The 70 cents level is a round number and an obvious target for traders. It will be closely monitored to see how the market reacts whenever that level is visited again. Any support shown at this level is likely to only be a reprieve from the strong selling the A$ has experienced.
The question will be how much it can hold up as there seems to be significant bearish sentiment surrounding the A$ for 2016 with many expecting further strong falls throughout the year.