Australian Dollar Drops Amid Risk Aversion

The Australian dollar drifted lower against its major counterparts in the Asian session on Wednesday amid risk aversion, as the United States announced it would slap 10 percent tariffs on an extra 200 billion worth of Chinese imports in an escalating trade conflict between the world's two biggest economies.

Investors are now bracing for retaliation from Beijing. "The outburst of large-scale mutual levying of tariffs will inevitably destroy Sino-U.S. trade," assistant minister of commerce Li Chenggang told a forum in Beijing.

The move comes after the U.S. imposed 25 percent tariffs on $34 billion of Chinese imports, for which Beijing immediately retaliated in equal measure.

The latest survey from Westpac Bank showed that consumer confidence in Australia bounced higher in July. The bank's index surged 3.9 percent this month to a score of 106.1. That follows the 0.3 percent gain in June to a reading of 102.1.

Figures from the Australian Bureau of Statistics showed that the total number of owner occupied housing commitments in Australia increased unexpectedly in May, after falling in the previous five months.

On a seasonally adjusted basis, total number of owner occupied dwelling commitments rose 1.1 percent month-over-month in May, reversing a 0.9 percent fall in April.

The aussie dropped to 5-day lows of 1.5847 versus the euro and 0.7404 versus the greenback, from its early highs of 1.5735 and 0.7459, respectively. If the aussie falls further, it may find support around 1.60 against the euro and 0.72 against the greenback.

The aussie weakened to 2-day lows of 0.9727 against the loonie and 1.0870 against the kiwi, reversing from its previous highs of 0.9780 and 1.0906, respectively. The aussie is likely to find support around 0.96 against the loonie and 1.07 against the kiwi.

The aussie hit a 2-day low of 82.07 against the yen and held steady thereafter. On the downside, 81.00 is likely seen as the next support level for the aussie.

Data from the Ministry of Economy, Trade and Industry showed that Japan's tertiary activity index increased for the second straight month in May.

The tertiary activity index edged up 0.1 percent month-over-month in May, following a 1.0 percent rise in April. In contrast, economists had expected a 0.3 percent decrease for the month.

Looking ahead, U.S. PPI for June and wholesale inventories for May are due in the New York session.

The Bank of Canada is scheduled to release its interest rate decision at 10:00 am ET. Economists forecast the benchmark rate to be raised to 1.50 percent from 1.25 percent.