Aussie tumbles on slowdown concerns; Canadian dollar under pressure

LONDON: Australia's dollar fell to a two-month low on Wednesday as signs of an economic slowdown supported expectations for an interest rate cut later this year, while the Canadian dollar dropped again before the central bank's policy decision.

Expectations for the Reserve Bank of Australia and the Bank of Canada to tilt towards a more dovish follow pauses by other central banks in policy tightening in 2019 in the face of waning economic momentum.

The Australian and Canadian dollars were the big movers in otherwise quiet FX markets, with the U.S. dollar holding near a two-week high after Tuesday's strong service industries and new home sales data, and the euro pausing before Thursday's European Central Bank meeting.

Australian economic growth was 0.2 percent in the fourth quarter, below an expected 0.3 percent.

The Aussie dollar slid 0.8 percent to as low as $0.7024 in early European trade, its lowest since Jan. 4.

Against the yen the Aussie also fell sharply, while New Zealand dollar weakened as worries about the Australian economy spread.

"The key domestic demand components were all weak and our economists suggest the door for rate cuts has opened further," said Adam Cole, currency strategist at RBC Capital Markets.

The Canadian dollar fell 0.2 percent to C$1.3373, its lowest in nearly six weeks, hurt by a combination of trade troubles, domestic political uncertainty and bets the BoC could be close to changing its policy direction. The BoC gives its policy decision later on Wednesday.

The dollar measured against a basket of currencies was unchanged at 96.898 after hitting a two-week high of 97.008 on Tuesday.

The euro slipped slightly to $1.1305, hovering near two-week lows versus the greenback as investors prepare for the possibility that the ECB will on Thursday signal a delay in raising rates until next year. The ECB is also expected to re-launch long-term bank loans soon, to fight an economic slowdown.

Currency market volatility has slumped in 2019 as a pause in central bank policy tightening and hopes for a resolution in the U.S.-China trade conflict suppress price movements. Deutsche Bank's Currency Volatility Index is approaching record lows.

Viraj Patel, global macro strategist at investment advisory firm Arkera, said realised volatility in euro/dollar was at or near record lows.

"You have no real thematic direction. In these sort of FX markets, euro/dollar is looking for some sort of directional catalyst," he said.

Sterling was stuck near one-week lows on profit taking and renewed worries about next week's parliamentary votes on Brexit.

The yen stood little changed at 111.90 yen per dollar .