The Australian dollar fell to a 10-day low on Friday as markets discounted the chances of an interest rate hike following downbeat comments from a senior central bank official, while bonds got some much-needed relief to end a brutal week of selling.
With the first U.S. presidential debate over and sparking a muted market reaction so far, traders are turning their attention to the U.S. Personal Consumption Expenditures (PCE) Price Index due later this Friday, after inflation figures in Canada and Australia surprised on the upside.
The Australian dollar fell 0.3% to $0.6624, its lowest level since June 18. It failed to gain much ground overnight, although the US dollar eased slightly after Andrew Hauser, the deputy governor of the Reserve Bank of Australia, downplayed the impact of a high inflation report for the month of May.
It is heading for a 0.2% weekly decline, although US PCE data is likely to stoke volatility later in the day. Support now lies around $0.6580.
On Thursday, the RBA’s Hauser said it would be a mistake to set policy based on a single inflation number. The RBA will have the outcome of the full second-quarter inflation report, a labour market update and readings on consumer spending before its August meeting.
“A weak June quarter CPI release and strong labour market data could tip the balance and force a rate hike, but this is not our base case and is not supported by the information currently available,” said Luci Ellis, Westpac’s chief economist.
Swaps returned to a 30% chance of a quarter-point rate hike in August, up from 42% a day ago. However, the prospects for a rate reduction are reduced to zero for this year.
Bonds saw some relief on Friday, after suffering the biggest two-day declines in more than a year earlier this week.
Three-year government bond futures rose 5 points to 95.9, moving away from a seven-month low. However, they lost 21 points over the week, which represents the largest weekly drop since April.
The kiwi fell 0.2% to a new six-week low of $0.6068 on Friday and tested the major support level of the 200-day moving average at $0.6069. It is about to suffer a weekly drop of 0.8%. (Reporting by Stella Qiu; Editing by Muralikumar Anantharaman)
