The Australian dollar sinks as RBA rate cut speculation grows

Peter Macdiarmid/Getty Images
  • The Australian dollar sank on Wednesday as weak economic growth spurred speculation of further RBA rate cuts.
  • The Australian economic calendar is busy again on Thursday, headlined by retail sales figures for January.
  • Market movements in the second half of the session are likely to be dictated by the ECB’s March monetary policy decision.

The Australian dollar sank to fresh two-month lows on Wednesday as another weak performance from the economy in the December quarter prompted markets to price in a greater chance of rate cuts from the RBA in the year ahead.

Here’s the scoreboard at 8am in Sydney on Thursday.

AUD/USD 0.7028 , -0.0054 , -0.76%
AUD/JPY 78.54 , -0.70 , -0.88%
AUD/CNH 4.7199 , -0.0279 , -0.59%
AUD/EUR 0.6212 , -0.005 , -0.80%
AUD/GBP 0.5333 , -0.004 , -0.74%
AUD/NZD 1.0380 , -0.0045 , -0.43%
AUD/CAD 0.9439 , -0.0016 , -0.17%

After starting the session at .7082, the AUD/USD came under selling pressure following the release of Australia’s latest GDP report, revealing the economy grew by only 0.2% in the December quarter.

The result, below what markets and the RBA were expecting, saw J.P. Morgan and Macquarie Bank move to forecast 50 basis points of rate cuts from the RBA this year.

Financial markets also moved forward the expected timing of when the RBA is likely to cut rates, pricing in a full 25 basis point decrease, with a small risk of a second move, by the end of the year.

The movement in rates markets weighed on the Aussie, seeing the AUD/USD slump to lows not seen since early January this year.

The Aussie also lost substantial ground against the major crosses, the once exception being the Canadian dollar, or Loonie as it’s known, that was weighed down by dovish remarks from the Bank of Canada in its March monetary policy statement.

The weakness in the AUD/USD came despite news that the US trade deficit ballooned to the highest level in a decade in December, along with data showing hiring in the US private sector slowed sharply in February.

The Aussie also lost ground against the euro, finding little support from speculation that the European Central Bank (ECB) may be about to introduce another round of low-interest loans to lenders to help support economic activity.

A slide in US stocks, and some modest weakness in crude and iron ore prices, also did little to help the Aussie’s cause.

Investing.comAUD/USD 4-Hour Chart.

Turning to the day ahead, it will be another busy day for traders with a raft of important Australian economic data releases on the way, continuing the deluge of information already received this week.

At 8.30am AEDT, the Ai Group will release its Performance of Construction Index (PCI) for February. Given recent trends in construction and housing-related data, it’s unlikely to be good.

Three hours later, the ABS will release Australian trade an retail sales figures for January.

The latter will garner most market interest, and is the most likely catalyst to spark short-term volatility in the Aussie dollar.

This 10-second guide has more on what to expect in the retail report.

Outside of the Australian releases, the data and events calendar in Asia is quiet, leaving headlines and technicals to dictate broader direction.

China is expected to release FX reserves data for February at some point during the session, although this has not been a market-mover in recent times.

Later in the day, the main data highlights will be employment growth and revised Q4 GDP from the Eurozone along with jobless claims and non-farm productivity figures from the United States.

On the cental bank front, the ECB will also announce its March monetary policy decision, followed by a press conference by President Mario Draghi.

“We think forecast downgrades are in the offing and although forward guidance is likely to be unchanged,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank,

“We also expect an acknowledgement of TLTROs discussion (the new round of cheap loans to Euro-area banks), but we don’t anticipate an official announcement at this meeting.”

While the ECB press conference will dominate, US FOMC member Brainard will also be in action.

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.