Australian dollar dives to two-month low as interest rate fears grip markets

The Australian dollar drops to its lowest level since April 8. (AAP: Joel Carrett)

The Australian dollar fell to its lowest level in over two months, just over 70 cents to the US dollar.

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

The Reserve Bank will be watching the dollar closely ahead of next Tuesday's scheduled meeting on interest rates.

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 US dollar is surging as interest rates rise. (ABC News: Giulio Saggin)

"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.

Six decades ago, Australia swapped its old currency for dollars and cents. A catchy jingle sung by a cartoon character named Dollar Bill helped the country adapt.

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.

The US Federal Reserve is likely to change course after the April appointment of the pro-Trump Kevin Warsh as chair. (Reuters: Kevin Lamarque)

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

"This week, US Federal Re