The Australian dollar slides to new lows as RBA rate cut expectations increase

  • The Australian dollar continues to slide, closing at fresh three-year lows against the greenback.
  • A surprise lift in Australia’s unemployment rate in April has seen expectations for a RBA rate cut next month increase substantially. US data was also stronger-than-expected on Thursday, helping the greenback to rally against all the major crosses.
  • The economic calendar is quiet to end the trading week.

The Australian dollar continues to slide, closing at fresh three-year lows against the greenback on Thursday.

Here’s how the Aussie is faring at 7am Sydney time on Friday.

AUD/USD 0.6889 , -0.0038 , -0.55%
AUD/JPY 75.67 , -0.24 , -0.32%
AUD/CNH 4.7735 , -0.0086 , -0.18%
AUD/EUR 0.6164 , -0.0019 , -0.31%
AUD/GBP 0.5383 , -0.0006 , -0.11%
AUD/NZD 1.0537 , -0.0013 , -0.12%
AUD/CAD 0.9275 , -0.0034 , -0.37%

Continuing the pattern seen earlier in the week, the Aussie lost ground against all of the major crosses, undermined by a surprise lift in Australia’s unemployment rate in April and a bout of US dollar strength late in the session.

The Aussie’s latest leg lower coincided with the release of Australia’s jobs report for April, revealing a surprise lift in unemployment to 5.2%, well above the 4.9% level it sat just two months earlier. Broader measures of labour market underutilsation also weakened, overriding continued strength in hiring and record labour for participation.

The jobs report saw the AUD/USD briefly drop below the .6900 level as financial markets moved to price in at least two 25 basis point rate cuts from the RBA, with the risk of a third, by the middle of next year.

“The uptick in the unemployment rate means that, along with the additional weakening in forward looking indicators, the two necessary conditions for the RBA to cut have been met or we are now very close to meeting them,” said Rodrigo Catril, Senior FX Strategist at the National Australia Bank.

“Market pricing pointing at a 75% probability [for a cut in June] suggest we are almost there too.”

AUD/USD Hourly Chart

While the AUD/USD managed to clamber higher in European trade, that move fizzled out as the greenback found a tailwind from the release of stronger-than-expected data.

“The USD lifted because of improvements in some of the second tier US economic data,” said Joseph Capurso, Senior Currency Strategist at the Commonwealth Bank.

“Building permits and the New York Fed’s Empire manufacturing survey both lifted more than expected. The positive trend suggests the market’s pricing for one Fed rate cut this year is overdone.”

An opinion piece from Terry McCrann, a influential RBA watcher, that said the RBA will cut rates on June 4 also helped to keep the Aussie under pressure.

The combination of increased RBA rate cut expectations and the firmer greenback saw the AUD/USD fall to .6884, the lowest level since the January 3 “flash crash” when it tumbled several cents in a matter of seconds on computerised selling.

Excluding that one-off event, the AUD/USD currently sits at the lowest level since early January 2016.

Should the Aussie break below this level, you’ll have to go back to the GFC to see a time when it was this weak against the greenback.

AUD/USD Weekly Chart

Turning to Friday’s trading session, there’s little in the way of major economic data, pointing to the likelihood that headlines and sentiment relating to the US-China trade spat will continue to dictate direction.

There’s next to nothing out in Asia with Eurozone inflation for April the only major headline act in Europe. The University of Michigan consumer sentiment index for May will also be released in the United States.

On the central bank speakers’ front, New York Fed President John Williams, along with FOMC Vice-Chair Rich Clarida, are also scheduled to deliver speeches.