The Australian dollar should be close to a near-term bottom after heavy losses

The Australian dollar has been subjected to further heavy selling pressure over the past 24 hours as global risk aversion has dominated. The Australian currency hit lows around 0.8520 near the close of local trading on Tuesday before a tentative recovery.

Levels of risk aversion have remained very important with the heavy falls in global stock markets undermining confidence and triggering an unwinding of carry trades. Global stock market trends will remain under close scrutiny and the Australian dollar will remain vulnerable if there is a rout on Wall Street.

The domestic trends will be important overnight with the CPI release and a high figure would provide some initial Australian support. A weak figure would reinforce expectations that interest rates will not be increased which would undermine the currency. Volatility levels will remain high in the short term with further near-term support realistic close to 0.85 against the US dollar.