Australian dollar continues to decline even after the Reserve Bank of Australia hiked interest rates last week for the first time since 2010.

We explore the reasons for such an overwhelming decline against the US dollar.

Such reasons include The RBA itself and the future of Australian interest rates, and the Chinese economy's grim forecasts, and the hefty losses on Wall Street.

AUD/USD fell 0.6% to 0.6910, the lowest since July 2020, after losing 1.8% on Monday, the third loss in a row.

The RBA decided to hike rates by 25 basis points in May to 0.35%, surpassing estimates of a 15 basis points hike, the first since 2010.

Aussie reacted favorably for just a couple of days before a collapse, with the RBA expecting more hikes in the next few months to contain inflation.

However the decision to hike rates was quite late compared to market forecasts, which failed to prop up the Aussie sufficiently. 

China's Economy

China continues to face a difficult Covid 19 infection, with is forcing the lockup of several major cities, including Shanghai.

such a lockup is hammering economic performance naturally, and the Australian economy is highly dependent on China's trade activities. 

Wall Street

The Aussie is highly reactive to the US stock market, so it's only natural for it to sustain hefty losses alongside similar losses in all Street

US stock have hit 18-months lows on forecasts for several more Fed rate hikes, which will raise borrowing costs. 

Gold prices rose in European trade, recouping after hefty losses yesterday, as US yields slow down ahead of important statements by Fed officials. 

Gold Prices

Gold rose 0.6% to $1,865 an ounce, after tumbling 1.55% yesterday, as the dollar index hits 20-year highs. 

US Bonds 

US 10-year treasury yields fell 1.9% today away from four-year highs at 3.203% on active profit-taking, as bets on a massive June rate hike wane.

Fed officials have hinted that a 75 basis points hike in June is unlikely, with investors awaiting crucial inflation data tomorrow. 

Estimates 

Gold continues to face a bearish trend overall as the Fed is expected to tighten the policy and push US treasury yields higher throughout the year.

The SPDR

Gold holdings at the SPDR fell 6.1 tones yesterday to a total of 1,075 tones, the lowest since March 17.

Oil futures tilted lower in Asian trade, with US crude off late March highs, while Brent declined from April 19 highs, as the dollar index declined for the first session in four away from December 2002 highs. 

Markets are pricing in a drop in Chinese demand for oil as Covid 19 infections spread and authorities lock up major cities.

As of 06:22 GMT, US crude futures due in May fell 0.59% to $102.05 a barrel, while Brent July futures fell 0.62% to $104.91 a barrel, as the dollar index slipped 0.08% to 103.58.

Chinese authorities is clamping down heavily on any opposition to its zero-covid harsh policies against the pandemic, in order to contain the crisis quickly and return to solid growth.

China's central bank has issued statements asserting full support of the economy to provide enough liquidity and underpin small businesses. 

Latest World Health Organization data showed Covid 19 infections up at 515.19 million, with the global death toll standing at 6.25 million. 

On the Ukrainian front, Russian officials said peace talks haven't stopped, but are ongoing from afar, with Russian President Putin expressing confidence in the success of the operation in Ukraine.

Baker Hughes data showed US oil rigs rose by 5 rigs to 557 rigs, the highest since March 2020, while US output steadied at 11.9 million barrels.

US output is down 1.2 million bpd or 10% from a record high at 13.1 million bpd scaled in March 2020, while hitting a record low in August 2020 at 9.7 million bpd.

Copper prices declined on Monday, hitting five-month lows at the London Exchange.

That comes amid mounting pressures on risk assets in the markets, such as stocks and industrial metals.

US Dollar

The major reason behind copper's decline today is dollar's strength, hitting 20-year highs at 103.9, with a 0.3% profit today.

Dollar's profits hurt metals as they become more expensive to holders of other currencies.

Last week, the Fed hiked rates by 50 basis points to under 1%, the largest increase since 2000.

China

Another major reason behind copper's decline is weakening demand from China, as Covid 19 infections continue to spread.

Copper July futures fell 2.4% to $4.16 a pound as of 14:46 GMT.

Copper three-month futures declined 0.7% to $9,346 a tone after hitting December lows.