Australian dollar rises
Yesterday, the local currency has slipped for a third straight session as fears of renewed US-China trade tensions spooked stock markets, while investors toyed with the idea of possible rate cuts at home.
Shares slid after Canadian authorities arrested a top executive of Chinese tech giant Huawei for extradition to the United States, straining ties between the two superpowers.
The Aussie dollar dropped to 72.24 US cents on Thursday, wiping out a week’s worth of gains and taking it further from the recent 73.94 top.
Australian two-year bond yields dived to their lowest in nine months at 1.93 per cent as futures priced out any prospect of a rate hike next year and replaced it with a minor chance of an easing.
The sea change started after data on Australian economic growth out on Wednesday proved surprisingly soft, with wages and consumption notably subdued.
That was followed overnight by a dovish turn from the Bank of Canada which noted “there may be additional room for non-inflationary growth”.
Markets responded by sharply paring expectations of further hikes there and punishing the Canadian dollar, causing collateral damage to the Aussie.
Thursday’s helping of domestic data did nothing to alter the mood with retail sales up a modest 0.3 per cent and the trade surplus missing forecasts.
The run of news led Nomura economist Andrew Ticehurst to abandon forecasts for rate rises by the Reserve Bank of Australia in August 2019 and mid-2020.
“We now expect a flat cash rate profile continuing for an extended period,” he said.
“We suspect the market could come to price in a small probability of a rate cut. While this goes further than our thinking, we do understand such sentiment and believe this could result in some yield curve steepening pressure.”
Three-year bond futures shot up to 98.050, matching a peak from early September and a major rally from November’s trough of 97.775.
The 10-year contract hit a three-month peak at 97.5250, and a break there would take it to ground not trod since June 2017.