Australian dollar hits 4-month low as economy undershoots
THE Australian dollar skidded to four-month lows on Wednesday as surprisingly soft economic data led markets to bring forward the likely timing of future rate cuts, triggering a rally in bonds.
Selling gathered pace through the afternoon to send the Aussie down 1 per cent to US$0.6422, breaking support at US$0.6443. The next chart bulwark is a trough from August at US$0.6349.
The kiwi dollar was dragged down in its wake, losing 0.7 per cent to US$0.5842. Major support comes in at US$0.5797.
The retreat followed data showing Australia’s economy grew just 0.3 per cent in the third quarter when markets had been priced for at least a 0.4 per cent rebound.
Annual growth actually slowed further to 0.8 per cent, the lowest since the pandemic and a result typically only seen during recessions. Indeed, without strength in government spending the economy would already be in a technical recession.
That saw markets pull forward a first rate cut to April from May, while the chance of a move in February shifted to 44 per cent from 27 per cent. The cash rate has been at 4.35 per cent for more than a year now.
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Yields on Australian 10-year bonds dropped 6 basis points to a six-week low of 4.257 per cent, while three-year bond futures bounced 7 ticks to 96.160.
Investors still see little chance the Reserve Bank of Australia (RBA) would ease at the next meeting on Dec 10, given it had only just reiterated that a move was unlikely in the near term given stubborn inflation.
“The biggest disappointment was consumer spending, which was unchanged, and private investment was broadly flat too,” said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics. “Instead, the main show in town remained public demand, which rose by an extraordinary 2.3 per cent q/q.”
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“The weakness adds to the case for looser monetary policy and we’re sticking to our view that the RBA will start a short easing cycle in the second quarter of next year.”
The Reserve Bank of New Zealand has already slashed its rates by 125 basis points, leaving them in the rare position of being lower than Australia’s at 4.25 per cent, and projected more to come.
Markets have New Zealand’s cash rate down to around 3.33 per cent by the end of next year, compared with 3.77 per cent for the RBA.
Dairy prices remain one bright spot for New Zealand, with ANZ’s commodity index up a hefty 2.9 per cent in November. Butter is at record highs having climbed 44 per cent in the past year, delivering a windfall for farmers and government tax receipts. REUTERS
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