The Australian dollar has fallen to a four year low after the Republican win in the US midterm elections and as metal prices continue to slide.

At 0700 AEDT on Thursday, the local unit was trading at 85.81 US cents, down from 87.24 cents on Wednesday.

The currency dropped as low as 85.65 US cents early on Thursday morning, its weakest level since July, 2010.

The Republican Party has taken control of the US Senate in midterm elections, claiming a majority in both chambers of Congress for the first time since 2006.

BK Asset Management MD, Boris Schlossberg, said all the major currencies fell against a rallying US dollar following the election results.

“Part of the reaction was simply a knee jerk move as markets often assume that Republican rule will be more business friendly and will help the US economy grow,” he said.

“However, the rally in the US dollar may be also a bet that the change in legislative leadership would expedite the policy actions of the US Federal Reserve towards interest rate normalisation.”

Schlossberg said the Republicans are opposed to the Fed’s economic stimulus policies and there is likely to be increased pressure on Fed chair Janet Yellen to raise interest rates.

National Australia Bank global co-head of FX strategy, Ray Attrill, said the Australian dollar was one of the worst performing currencies overnight because of falling metals prices.

Gold hit a five year low, iron ore prices continue to slide after China ordered a temporary shutdown of some of its steel mills and copper prices have hit their lowest levels in three weeks.

“For all the compelling fundamental reasons for the Australian dollar’s fall, we can’t ignore the fact that the simple break below the recent low of around 86.50 US cents provided the cue for fresh bouts of selling,” he said.

A focus for markets on Thursday will be the release of local employment figures for October.

AAP