Australian dollar slides
The Australian dollar has fallen Thursday, buying 69.70 US cents from 69.98 US cents on Wednesday.
Yesterday, the local currency was clinging to gains as bears focus on the negatives for the United States and Europe and look past weakness in domestic economic conditions.
Dealers emphasised the market was still structurally short of the Aussie and after weeks of selling and their gains could prove short-lived once positions were more balanced.
The Aussie was holding firm at 69.97 US cents on Wednesday, having risen 0.9 per cent in three sessions as its US counterpart came under broad-based pressure on expectations the Federal Reserve could soon cut rates.
The Aussie did well to dodge damage from a disappointing reading on Australian gross domestic product which showed annual growth slowed to a decade-low of 1.8 per cent last quarter.
The saving grace was that poor numbers had already been priced in and largely pre-empted by Tuesday’s cut in interest rates from the Reserve Bank of Australia.
Investors are already primed for at least one more easing in the 1.25 per cent cash rate with July put at a 32 per cent chance and August at 70 per cent, while September is almost a done deal.
“We favour a pause for the RBA to assess the impact of the June cut as well as determine exactly what fiscal stimulus is coming down the pipe, and how this combination impacts the economic outlook,” said Annette Beacher, chief Asia-Pacific macro strategist at TD Securities.
“As our tracking for Q2 core inflation is 1.5 per cent year on year, this supports our view of a follow-up cut in August to 1 per cent.”
Yet Australia is hardly alone in needing stimulus, with markets aggressively pricing for easing in the US, European Union and Canada, among many others.
The European Central Bank is set to meet on Thursday amid much talk it will take a dovish stance following disappointingly soft inflation figures.
Federal Reserve Chairman Jerome Powell on Tuesday opened the door to a rate cut should trade disputes with China and Mexico threaten domestic activity.
Yields on two-year Treasury notes have dived a huge 40 basis points in the past couple of weeks, while Australian yields are down just 15 basis points.
On Wednesday, Australian three-year bond futures were one tick higher at 98.890, while the 10-year contract held steady at 98.4850.
Both are just off all-time peaks.