The Australian dollar resumes its slide as rate cut speculation swirls

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  • Increased speculation over RBA rate cuts is weighing on the Aussie dollar.
  • On Tuesday, RBA governor Philip Lowe adopted an explicit easing bias, implying the RBA is likely to cut rates in the months ahead. Markets attach a 90% probability that a 25 basis point rate cut will be delivered in June.
  • Australian Q1 construction work done will be released on Wednesday. The residential figure will flow directly into Q1 GDP.
  • The minutes of the US Federal Reserve’s latest FOMC meeting will be released late in the session. UK inflation is the only major data highlight.

The Australian dollar came under renewed selling pressure on Tuesday as RBA rate cut expectations scaled fresh peaks.

Here’s the scoreboard at 7am in Sydney on Wednesday.

AUD/USD 0.6883 , -0.0023 , -0.33%
AUD/JPY 76.04 , 0.04 , 0.05%
AUD/CNH 4.7718 , -0.0197 , -0.41%
AUD/EUR 0.6164 , -0.0017 , -0.28%
AUD/GBP 0.5417 , -0.0009 , -0.17%
AUD/NZD 1.0575 , 0.0009 , 0.09%
AUD/CAD 0.9227 , -0.0049 , -0.53%

With the exception of the New Zealand dollar and Japanese yen, the Aussie slid against all other major currencies as odds for a 25 basis point rate cut from the RBA jumped to 90%.

A highly-anticipated speech from RBA governor Philip Lowe was the main catalyst behind the AUD’s latest tumble, reflecting the adoption of an explicit easing bias from the central bank that suggests it will cut rates in the months ahead.

“Lowe came as close to pre-announcing a June rate cut as it’s possible for a central banker to get yesterday, stating that, ‘at our meeting in two weeks’ time, we will consider the case for lower interest rates,” said Ray Attrill, head of FX strategy at NAB.

Financial markets are now fully priced for the RBA to deliver not one but two 25 basis point rate cuts by November. Around a 50% probability is being attached to the cash rate being reduced to 0.75% by the middle of next year.

Australian bond yields slumped on Lowe’s remarks, pushing back towards record-low levels. The AUD/USD was dragged lower as a consequence, hitting a session low of .6866 before recovering modestly into the close.

Investing.comAUD/USD Hourly Chart

Against the crosses, the Aussie also lost ground against the British pound and euro despite ongoing uncertainty over Brexit. It fared better against the Japanese yen, albeit marginally, thanks to an improvement in investor risk appetite on a perceived lessening in trade tensions between the United States and China.

The New Zealand dollar was undermined by Lowe’s signal that the RBA is likely to cut rates, adding to the view that the RBNZ will ease policy settings further in the period ahead.

Turning to the day ahead, there’s a few local data releases of note on the way.

The latest Q1 GDP input arrives with the release of construction work done from the ABS. A flat outcome is expected. The residential figure will flow directly into Australia’s GDP report that will be released in early June.

Elsewhere, Westpac’s Leading Index, along with the government’s skilled vacancies report, will also be released.

Regionally, New Zealand Q1 retail turnover will arrive early in the session. Japan will also release trade data for April.

In the second half of trade, data highlights include UK inflation and crude oil inventories from the EIA in the United States.

On the central bank speakers’ front, European Central Bank president Mario Draghi will be in action as will John Williams, Raphael Bostic and James Bullard from the US Fed.

The minutes of the latest US FOMC meeting will also arrive at 4am AEST.

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