US Markets

Australian dlr heads for 4th week of losses as rate risks mount

Credit: REUTERS/DANIEL MUNOZ

The Australian dollar was heading for a fourth straight week of losses on Friday as uncertainty shrouded the Sino-U.S. trade talks, while mounting speculation of more rate cuts at home tugged bond yields sharply lower.

By Wayne Cole

SYDNEY, Nov 29 (Reuters) - The Australian dollar was heading for a fourth straight week of losses on Friday as uncertainty shrouded the Sino-U.S. trade talks, while mounting speculation of more rate cuts at home tugged bond yields sharply lower.

The Aussie was flat at $0.6764 AUD=D3, having eased 0.3% for the week so far and almost 1.9% for November as a whole. The break of chart support at $0.6770 also risked a further pullback to $0.6724.

That was a marked contrast to the New Zealand dollar which was heading for its third week of gains helped by a run of upbeat domestic data. The kiwi was trading at $0.6420 NZD=D3, up 0.3% for the week so far.

The Aussie has been under fire since the Reserve Bank of Australia (RBA) indicated rates would have to fall to just 0.25% before it considered quantitative easing, leading markets to price in not just one cut next year but two.

Futures are fully priced for a quarter point easing to 0.5% by April 0#YIB: and imply around a 44% chance of a move to 0.25% by year end.

The only positive for the Aussie was that the RBA had shown no appetite for moving at its next policy meeting on Dec. 3, giving it a break until the first meeting of 2020 in February.

"It seems unlikely that the RBA will opt for a surprise rate cut in December where just 3 basis points is priced," said Tom Nash, a strategist at HSBC Bank Australia. "Near-term policy inertia favours relative currency stability versus the USD."

"AUD-USD continues to trade within the same tight $0.67-0.69 range that has held for the past four months, while three-month implied FX volatility recently reached the lowest levels this century," he added.

"We maintain our long-term forecast of $0.68. It would likely take something dramatic from offshore – perhaps related to US-China "phase one" trade deal negotiations – to trigger a breakout."

Bonds have been much more energetic with yields on three-year paper AU3YT=RR dropping 13 basis points just this week to 0.61%, not far from the all-time low of 0.57%.

Yields on 10-year bonds AU10YT=RR were off 8 basis points for the week at 1.01% and approaching their record trough of 0.85%.

The rally has been more limited for New Zealand bonds with 10-year yields down 5 basis points for the week at 1.32%, so widening the spread over Aussie debt.

(Editing by Shri Navaratnam)

((Wayne.Cole@thomsonreuters.com; 612 9321 8162; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Latest US Markets Videos

Reuters

Reuters, the news and media division of Thomson Reuters, is the world’s largest international multimedia news provider reaching more than one billion people every day. Reuters provides trusted business, financial, national, and international news to professionals via Thomson Reuters desktops, the world's media organizations, and directly to consumers at Reuters.com and via Reuters TV.

Learn More