Crunch went the Aussie dollar as it shed over 3USc in trading late last week, especially Friday night when the losses more than doubled.
The currency closed around 85.18 USc in New York, down from around 88.36USc in Sydney on Thursday afternoon and 87.07USc in Sydney on Friday afternoon. So the loss in European and US markets was almost two cents, a sharp fall.
The currency's recent run peaked last week at 88.71 USc last Wednesday after the higher than expected June quarter inflation figures.
Driving the loss was the sharp rise in the value of the US dollar Friday as the fears over credit markets and sub-prime mortgages and housing crystallized and sent sharemarkets lower.
The US currency had its biggest weekly gain against the euro since January as the risk of owning American and European corporate bonds soared while the yen also rose against currencies including the euro and the pound (and the Australian dollar) as a decline in stockmarkets saw the so-called carry trade curtailed.
Market reports said the Australian and New Zealand dollars led declines against the greenback, each down 2%. The Aussie and the Kiwi also lost 2% in value against the yen.
The US dollar gained 1.4% against the euro last week
Also helping the US currency was the positive news on the US economy which grew last quarter at the fastest pace for more than a year. The Federal Reserve's preferred inflation gauge rose 1.4%, the slowest rate in four years.
This normally would have seen traders sell the US dollar, but in such difficult market conditions foreigners are buying US Government bonds to hold their money temporarily in the world's deepest and most liquid securities market.
That has been a positive for the greenback and is why the Australian and Kiwi dollars will be knocked around over the next couple of days.
The dollar is being driven by the events in share and credit markets and speculation about a possible interest rate move has suddenly died away.
This week we have some interesting figures: building approvals tomorrow and retail sales and international trade on Wednesday.
Stephen Roberts, chief economist at Grange Securities sees homebuilding approvals (Grange: +2.0%, May was -5.6%), private sector credit (Grange: +1.2%, +14.6%yoy, May +1.2%, +14.6%yoy) and on Wednesday, international trade (Grange: -$A1.4 billion, May -$A0.8 billion) and retail sales (Grange: +0.6%, May -0.1%).
"The retail sales reading will also include retail sales for the June quarter which may be up by around 0.1%, however real consumption expenditure for GDP purposes is likely to be stronger, adding-in robust motor vehicle sales through the quarter and stronger spending on services.
"The June international trade reading is likely to show a wider deficit because of the severe weather hampering coal exports from the Hunter Valley in June, but even with the bigger deficit in June, the cumulative deficit for Q2 is likely to be lower than in Q1, implying a net positive contribution to Q2 GDP.
"There is unlikely to be anything in the economic readings next week that implies a severe enough slowing in economic activity to prevent the Reserve Bank from lifting the cash rate on 8th August.
"Indeed, rather the opposite is likely to be the case and the numbers should be strong enough to reinforce the already very strong case for a rate hike.
"It is also worth keeping in mind that the current corrections in financial markets are likely to matter less to the Reserve Bank than the evidence of continuing very strong global economic growth," Dr Roberts said.