The Australian and New Zealand dollars nursed deep losses on Friday as speculation of interest rate cuts at home contrasted with the outlook for a hike in the United States later in the year. The Australian dollar was at $0.7660, having touched a 6-week trough of $0.7618 on Thursday. It has slumped more than 2 percent this week, on top of a 2.5 percent loss the previous week. A break of $0.7618 would open the way to a $0.7534 trough touched in April.
It hovered near 6-year lows against sterling which rose as far as A$2.055 on Thursday, while the euro extended gains to A$1.4336. Part of the weakness came in the wake of a survey showing softness in Australian business investment, leading to debt markets lifting the probability of an easing by Christmas to 90 percent, from 60 percent on Thursday.
The Reserve Bank of Australia holds its next meeting on June 2 but is considered almost certain to hold the policy rate at 2 percent. "The combination of a Fed rate hike in Q4 and concomitant USD strength coinciding with the steepest part of Australia's mining investment slowdown, generating risks of a further RBA rate cut, are the main reasons why we see AUD under fresh downward pressure," said Chris Loong, a strategist at Commonwealth Bank of Australia. The New Zealand dollar sagged to $0.7140 after a survey showing a tumble in business confidence there added to speculation of a rate cut as early as June. New Zealand government bonds rose, pushing yields as much as 4 basis points lower along the curve. Australian government bond futures jumped to 3-week peaks, with the three-year bond contract up 5 ticks at 98.090. The 10-year contract added 5 ticks to 97.2750.