SYDNEY: The Australian dollar languished near a four-month low on Wednesday while bonds retreated from their two-month highs, with much riding on an employment report now that the central bank has unexpectedly turned dovish on rates.
The Aussie was struggling at $0.6375, having tumbled 1% overnight to hit a fresh four-month low of $0.6363. Support is shaky at $0.6347, while resistance lies at a key chart level of 65 cents.
The kiwi dollar was flat at $0.5799, after diving 1.1% overnight to hit a one-year trough of $0.5789. Support is not far at 0.5771, and a break of that level would see it testing lows not seen since November 2022.
The Reserve Bank of Australia (RBA) kept interest rates unchanged at 4.35% on Tuesday, but softened its hawkish stance by dropping a previous reference for policy needing to stay restrictive.
Swaps now imply a 63% chance of a quarter-point cut at the next RBA meeting in February while fully pricing in two rate cuts by May next year.
“For AUD-USD, fundamental headwinds remain clear going into 2025,” said Lenny Jin, Global FX Strategist at HSBC. “We expect any rebound in AUD-USD this month to fade in early 2025.”
“More forceful fiscal policy support from China could help, but…structurally, China’s importance to the AUD may be declining, given limited spillover effect through the commodity demand channel.”
Australian dollar dives as RBA takes a dovish turn
With the RBA now watching data for clues on when it might begin the easing-cycle, the employment report due on Thursday is taking on more significance than usual. Forecasts are centred on an increase of 25,000 in new jobs in October, while the unemployment rate is expected to have ticked up to 4.2% from 4.1%.
The labour market has stayed surprisingly resilient, with the jobless rate budging little over the past six months. A surprisingly soft report could further increase the chance of a February rate cut.
Before that, RBA Deputy Governor Andrew Hauser is due to speak at 1800 local time (0700 GMT) on Wednesday about Australia and the global economy.
Local bonds pared some of the gains from Tuesday. Three-year Australian government bond futures fell 3 ticks to 96.258, pulling away from a two-month top of 96.30 hit after the RBA’s decision.
Ten-year bonds dropped 5 ticks to 95.80, also off from its two-month high of 95.85.
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