The dollar's dive looks far from over, even though it has already lost more than 8 per cent of its value against the US dollar since the middle of last month.
Of course, a technical correction is possible. But increased disappointment over the pace of the global recovery, soft prices for many of the commodities Australia produces and the increasing popularity of the US dollar mean there is little reason for investors to buy the Aussie right now.
Factor in the recent rise in Japanese government bond yields and the ever-louder debate over whether Chinese economic data is showing the extent of its faltering economy, and the outlook for the Australian currency looks even worse.
The weakness in the Aussie has been building in recent weeks, but the currency's decline has accelerated over the past seven days even though mixed economic data from the US should have thrown cold water over recent bullishness about the recovery there.
The data failed to have much of an impact and US Treasury yields have remained relatively high, boosted by continued speculation that the Federal Reserve will start to wind down its quantitative easing program as early as this northern summer.
The latest to push this line has been San Francisco Federal Reserve president John Williams, who pointed last week to the clear improvement in the US labour market since September.
In Asian trading yesterday, the dollar traded cautiously ahead of a speech by US Federal Reserve chairman Ben Bernanke this week to the US Joint Economic Committee. At 5pm AEST, it was buying US97.57, up US0.2c.
Westpac said in a note to clients yesterday that if Mr Bernanke confirmed the start of a winding down of the Fed's quantitative easing program, the Aussie could be expected to slide as low as US9c in coming days. If he dismissed it, then the Aussie could bounce quickly back up to about US99c, the bank added. But perhaps even more important for the Aussie has been the performance of Japanese bond yields as financial markets have responded to evidence that Japan may finally be starting to pull out of its long recession.
Although the differential between Australian and Japanese 10-year bond yields is still high, with the latter at 0.8 per cent and the former at 3.1 per cent, this is a far cry from mid-March, when they were at 0.6 per cent and 3.7 per cent, respectively.
The result has been a loss of buying interest from Japan, as shown in the recent Ministry of Finance flow figures, as Japanese investors have sought better opportunities at home or elsewhere.
Simon Derrick, a senior currency strategist at Bank of New York Mellon, notes that historically, when Japanese government bond yields back up from extreme low levels, "the move tends to be swift and brutal".
And that is certainly how it has seemed for the Aussie over the past few days: swift and brutal.
But that is not all that is playing against the currency. Each week that goes by brings more reasons for investors to doubt the strength of the global economic recovery.
Apart from the ups and downs of the data in the US and the steady deterioration of growth prospects in the eurozone, China has been a key disappointment.
Not only has data from the country come in below expectations, but some economists are now doubting whether even these numbers are up to scratch.
In a new study of Chinese data, Capital Economics questions recent reports that Chinese exports have grown by 17 per cent on the year and suggests the real level is only half that.
In a sobering assessment, the consultancy says: "There was little sign in the April data of a meaningful recovery after the weakness of the first quarter."
Given this, the decline in global commodity prices is hardly surprising and the chances of the dollar staging a sustainable bounce any time soon look poor.
