The U.S. Dollar has started to witness a decline in its value in the last couple of sessions and the losses widened today in response to some market-moving news. Today, the dollar crashed to its lowest level in six weeks because investors are worried about the pace of recovery and growth in the U.S. economy.

In today's session, the Australian Dollar was up 1% or 0.0075 against the dollar as the AUDUSD spot exchange rate stands at 0.7611usd from the previous closing price of 0.7536usd. In addition, the WSJ Dollar Index, which tracks the U.S. Dollar against a basket of 16 currencies lost 0.7% to 86.16 during the session.

This article seeks to explore the three main factors behind the current weakness in the U.S. dollar with a view to providing insight on how Australian business with exposure to the dollar might edge currency fluctuation risks.

Weak economic data sinks the dollar lower

The first reason behind the weakness in the U.S. dollar is the disappointing economic trends that the GDP report showed. Last Friday, the gross domestic product number showed that economic growth in the GDP was 1.2% in the second quarter. The 1.2% GDP was below the consensus economists' estimate of 1.6%. At the current GDP growth rate, the U.S. economy is growing at a normalized rate of 1% this year to mark the weakest start in economic growth since 2011.

The weakness in the GDP is exerting downward pressure on the U.S. dollar because investors are worried that the poor GDP number will give the Federal Reserve another reason to delay the raising of interest rates. Interestingly, Anthony Di Maggio, an analyst at SternOptions observes that "the weak GDP has reversed much of gains that the dollar made after the Brexit vote in June; hence, the greenback is likely to remain subdued until another economic data shows a significant change in the economic trend."

Wall Street will now focus its economic gauges on the jobs number that is due to be released on Friday. The strength (or weakness) of the July jobs number could be the biggest factor that will determine how the dollar will trade in the remaining weeks of this month.

Reserve Bank of Australia slashes interest rates

The second reason behind the weakness in the greenback today is the move by the Reserve Bank of Australia to slash its interest rates in response to poor inflationary trends and a slowing employment market.

It was reported that the Reserve Bank of Australia reduced its cash rate by 25 basis points to 1.5% to mark the second reduction in interest rates this year. Interestingly, stakeholders had expected a reduction in the interest rates and investors had actually pegged the odds of a rate reduction at 66%.

Australian policymakers have been worried that the core annual inflation stood at 1.5% in the second quarter below the 2% to 3% estimate band by the RBA. The RBA's reduction in interest rates is designed to encourage spending and trigger inflation.

In an accompanying statement, central bank Gov. Glenn Stevens observed that “the board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.”

Bank of Japan weakens dollar with expected stimulus measures

The third reason behind the weakness in the U.S. Dollar is the move by the Bank of Japan to introduce stimulus measures. The Shinzo Abe led cabinet added another dimension to Abenomics today by approving a 13.5 trillion yen ($132 billion) stimulus package to inject some life into the ailing Japanese economy.

Under the new stimulus package, the Abe Shinzo led government will pump more money into developing the Japanese economic infrastructure by building food processing facilities to encourage exports of agricultural products and by upgrading its sea ports.

The government also hopes to make a direct contribution to the lives of Japanese folk through the news stimulus package. Now, about 22 million low-income Japanese people can expect to receive handouts of ¥15,000 ($147) from the government under the new stimulus package.

Interestingly, the new stimulus package enjoyed a warm welcome and broad-based support partly because it was in line with expectations and because many investors consider it more humane and less aggressive. The Japanese Yen enjoyed a decent rally leading a to 1.60% gains against the dollar and the JPYUSD spot exchange rate stands at 0.009922 up from a previous close of 0.009766.