The Australian dollar sinks as rate cut speculation intensifies

Jose Luis Roca / AFP / Getty Images
  • Dovish commentary from New Zealand’s central bank saw the Australian dollar fall heavily on Wednesday.
  • The RBNZ adopted an easing bias, implying that official interest rates may be cut again. That increased speculation about potential RBA rate cuts, dragging the Aussie dollar lower.
  • Weak Chinese industrial profits and small declines in stocks and commodities also weighed on the Aussie.
  • Australian job vacancy data for February will be released today. The RBA has referred to this report frequently in recent months, suggesting it important in terms on the outlook for interest rate settings..

The Australian dollar fell sharply on Wednesday, dragged lower by an acknowledgment from the Reserve Bank of New Zealand (RBNZ) that it may cut interest rates again.

Here’s the scoreboard at 7.55am in Sydney on Thursday.

AUD/USD 0.7083 , -0.0051 , -0.71%
AUD/JPY 78.28 , -0.64 , -0.81%
AUD/CNH 4.7720 , -0.024 , -0.50%
AUD/EUR 0.6296 , -0.0035 , -0.55%
AUD/GBP 0.5357 , -0.0043 , -0.80%
AUD/NZD 1.0419 , 0.0093 , 0.90%
AUD/CAD 0.9502 , -0.0043 , -0.45%

After opening the session at .7134, the AUD/USD sank like a stone in Asian trade, undermined by dovish remarks from the RBNZ in its March monetary policy statement.

“Given the weaker global economic outlook and reduced momentum in domestic spending, the more likely direction of our next overnight cash rate (OCR) move is down,” the RBNZ said in the statement.

The adoption of an easing bias, abandoning the neutral view the RBNZ previously held, saw the NZD/USD tumble as much as 1.7%, reflecting that markets are now pricing in not only one but almost two 25 basis point rate cuts to the New Zealand cash rate by the end of next year.

While the Reserve Bank of Australia (RBA) still holds a neutral bias on the outlook for interest rates, the dovish shift from the RBNZ increased speculation that the RBA may soon follow suit.

Like New Zealand, that saw markets move to price in nearly 50 basis points of rate cuts from the RBA in the coming years, dragging down Australian government bond yields along with the Australian dollar.

Along with the dovish shift from the RBNZ, news that Chinese industrial profits fell at the sharpest annual pace since at least 2011 early this year also did little to help the Aussie’s cause.

Combined with modest weakness in European and North American stocks, along with most commodities, the soggy mood saw the AUD/USD slide to as low as .7069 before bouncing slightly towards the close.

Investing.comAUD/USD Hourly Chart

Like the greenback, the Aussie also fell against all major crosses except the Kiwi during the session, including against the British pound which rose modestly on news that UK Prime Minister Theresa May will resign should her Brexit withdrawal agreement be approved by parliament.

Voting on amendments to the withdrawal agreement look set to go underway as Asian markets open.

Elsewhere on Thursday, most interest in Australia will be on the release of Australian job vacancy data in February at 11.30am AEDT.

While the report has had next to no impact on markets in the past, the RBA has frequently pointed to this release to justify its optimistic view that strong hiring will help to lower unemployment gradually in the years ahead.

Any deterioration in the level of vacancies — as has been seen in other leading labour market indicators recently — will only bolster confidence that the RBA will likely cut rates in the months ahead.

“The RBA has placed greater faith in the ABS’s broader measure of labour demand, which, in theory, captures all available job openings, not just those advertised externally,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“[We see] vacancies falling sharply in Q1 given the monthly indicators provide a more timely read on the labour market. If we are right, this should concern the RBA as it would point to slower growth in employment.”

Across the region, there’ll also be some interest in the ANZ New Zealand Business Confidence report for March given the RBNZ cited weak confidence levels as a downside risk to the economy in the months ahead at its March monetary policy meeting.

Later in the day, the main highlights will be German and Spanish CPI, Eurozone monetary growth and consumer confidence along with jobless claims, the latest estimate for Q4 GDP and pending home sales from the United States.

On the Fed front, FOMC members Georgen Quarles, Clarida and Williams are also expected to be in action.

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