The Australian dollar has fallen Tuesday, buying 69.60 US cents from 69.69 US cents on Monday.
Last Friday, the local currency held onto gains made as markets move swiftly to price in a run of rate cuts in the United States as trade tensions escalate.
The Aussie dollar was steady at 69.75 US cents on Friday, up 0.5 per cent for the week so far, a resilient performance given the country’s central bank cut interest rates to a record low on Tuesday.
In contrast, the US dollar has been pressured by intense market speculation the Federal Reserve would have to cut its rates as insurance against a slowdown as President Donald Trump pursues trade disputes with both China and Mexico.
The futures market is wagering heavily on a cut as early as July, and has another two priced in by the middle of next year.
That outlook could change again depending on what payrolls figures show later on Friday.
The shift in expectations has been rapid with yields on two-year Treasuries diving 29 basis points in just two weeks. In the same period, Australian yields have dipped just four basis points so shrinking the yield gap in favour of the Aussie.
A problem for the Aussie is that the Reserve Bank of Australia is also thought likely to cut its 1.25 per cent cash rate again, possibly in July or August, and markets are increasingly wagering it may have to go under 1 per cent.
Futures have almost fully priced a move to 0.75 per cent by May next year following disappointing data on economic growth out this week.
“AUD has absorbed a lot of negative news over the past week, but it’s domestic woes seem set to persist,” said Sean Callow, a FX strategist at Westpac.
“The slide in US yields helps limit downside on AUD/USD but we still see probes of 70.00 US cents failing, with a return to the 68 US cents handle not far away.”
Australian government bond futures eased a touch on Friday but were still not far from all-time highs.
The three-year bond contract dipped 2.5 ticks to 98.910, while the 10-year contract fell 2.0 ticks to 98.5000.
