Australian dollar falls

The Australian dollar has fallen Wednesday, buying 69.87 US cents from 70.21 US cents yesterday.

Yesterday, the local currency eased back to 70.27 US cents after topping out at a three-month peak of 70.825 US cents last week.

The Australian dollar has drifted lower as a dearth of economic data left investors with little to do but second guess the prospects for policy easing in the United States and Europe.

Markets are wagering the European Central Bank will at least sound dovish at its policy meeting on Thursday, while the Federal Reserve will cut rates by a quarter point next week.

Futures imply the Reserve Bank of Australia will hold the official cash rate at a record low 1.0 per cent for now after cutting in both June and July.

Speaking on Tuesday, RBA Assistant Governor Christopher Kent reiterated the bank was ready to ease “if needed”, though he argued it was highly unlikely they would need to resort to quantitative easing.

Kent also noted a lower local dollar would help the economy but conceded this was hard to engineer when so many other central banks were also easing.

Another update on policy will come from RBA Governor Philip Lowe, who speaks on inflation and economic welfare on Thursday.

“That should provide some timely nuance to current pricing and understanding of the RBA’s tactics and triggers,” said Westpac analysts in a note.

“While we see 0.75 per cent as the low in the cash rate, the risks are to the downside.”

Markets are fully priced for a reduction to 0.75 per cent by December, and imply around a 50-50 chance of a further move after that.

Yields on three-year bonds were holding at 0.937 per cent and just above all-time lows of 0.883 per cent. 

The 10-year bond futures contract added 1.0 tick to 98.6700.


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