SYDNEY: The Australian dollar was pinned near four-month lows on Thursday as investors wagered on earlier and deeper rate cuts, while the break of a chart bulwark turned the technical outlook bearish.
The Aussie hunkered at $0.6430, having shed 0.9% on Wednesday to as far as $0.6399.
The breach of support at $0.6434 had triggered sales by momentum funds aiming for a trough from August at $0.6348.
The kiwi dollar steadied at $0.5867, after losing 0.5% the previous session to a low of $0.5830. Major support is down at the November trough of $0.5797.
Market pricing on rates had shifted sharply on Wednesday after data on Australian economic growth badly wrong-footed hopes for a recovery, while showing an easing in wage and price pressures.
Australian dollar hits 4-month low as economy undershoots
The Reserve Bank of Australia meets next week and is still widely expected to hold rates at 4.35%, as it has done for the past year.
Yet swaps now imply a 50% chance it will cut in February, up from 27% before the data.
A move to 4.10% is fully priced for April, instead of May, and rates are seen ending next year at 3.65% rather than 3.85%.
“The RBA’s November forecasts for growth and consumption now look likely to be downgraded and – alongside softer inflation pressures – we expect it to adopt a more dovish tone at next week’s Board meeting,” said Goldman Sachs economist Andrew Boak.
“We continue to expect the RBA to commence a gradual easing cycle in February.” So far, the RBA has taken a hawkish tack in its commentary, and reiterated last week that inflation was too high for policy to be eased anytime soon.
This is a major reason that of the four major local banks, CBA is the only one still sticking to February for the first cut, while NAB, ANZ and Westpac are tipping May.
Bond investors were clearly hoping for a dovish shift next week with three-year bond futures hitting a seven-week high of 96.240, having climbed almost 40 ticks since mid-November.
The Reserve Bank of New Zealand has already chopped rates by 125 basis points to 4.25% and swaps are fully priced for another quarter point in February, with some chance of a half-point move.
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