Aussie dollar dives to two-month low amid interest rate fears

The Australian dollar has found itself under renewed pressure.

Earlier, the local currency hit 70.18 US cents, the lowest level since April 8 when it was 69.46 US cents.

Later that day, it surged to 70.67 US cents as a two-week truce between the US and Iran was mediated by Pakistan.

At 4pm AEST, the Australian dollar was trading at 70.39 US cents.

The weakness stems from a renewed surge in the US dollar as global interest rates, including US interest rates, rise.

"The US dollar is up versus all other major currencies," InTouch Capital Markets senior FX strategist Sean Callow said.

Friday saw a major Wall Street sell-off, sparked by a much better-than-expected US employment report.

While more jobs sound like good news, it ignited concerns the US Federal Reserve would need to either keep interest rates unchanged or even raise them later this year.

Rising interest rates are negative for stocks because they increase corporate borrowing costs, restrain economic growth and more heavily discount future company cash flows when a company is valued.

Wall Street's technology-heavy NASDAQ index fell 4 per cent.

"It's all about higher US yields, [a] stronger US dollar and the accompanying equity [share market] reversal," Mr Callow said.

The further the Australian dollar falls, the lower the purchasing power for Australian tourists heading overseas.

It is, however, positive for Australian exporters as it makes their products and services more price-competitive.

Economists at AMP noted that global financial markets, more broadly, are getting nervous about higher inflation and rising interest rates as the Middle East conflict drags on.

"Australia is no longer expected to be an outlier with rising interest rates," AMP deputy chief economist Diana Mousina said.

"Markets are pricing in higher interest rates globally, which is keeping [bond] yields elevated.

"This week, US Federal Reserve regional president Lorie K Logan, spoke hawkishly about the outlook for rates and she sees the risk for higher interest rates later this year.

"Another governor Williams was more neutral.

"Kevin Warsh, the new Fed chair, will hold his first meeting as chair in a few weeks, so there may be some changes to Fed communication and focus ahead," Ms Mousina said.

The Australian share market (ASX) was closed today for the King's Birthday long weekend.

Asian share markets, however, fell heavily on Monday, taking their lead from Wall Street's sell-off on Friday.

South Korea's KOSPI fell 8 per cent at the open of trading, triggering a brief suspension in trading.

By late afternoon, after falls were tempered throughout the day, the index was back down over 8 per cent.

Japan's Nikkei 225 fell over 4 per cent.

Australia's Reserve Bank is likely to be watching the dollar given a significantly lower Australian dollar adds to inflationary pressure in the economy.