The Australian dollar weakened to less than 90 U.S. cents for the first time since September 2010 amid speculation the Reserve Bank will cut interest rates next month to a record low.
The Aussie has tumbled 11 percent in the past three months, the worst performer among 10 developed nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The U.S. dollar has gained 4.7 percent, while the kiwi, the nickname for the New Zealand Dollar, has fallen 6 percent.
“The broader-term Aussie dollar weakness is going to continue,” said Michael Judge, a Sydney-based dealer at OZForex Pty Ltd., an online foreign-exchange company. “If you see jumps up to 92, 92 1/2 U.S. cents, that’s a good sell signal for the Aussie.”
The Australian currency dropped 1.4 percent to 90.57 U.S. cents as of 10:14 a.m. New York time, after dropping to 89.99 cents. It has fallen 1 percent this week. New Zealand’s dollar fell 0.8 percent to 77.94 U.S. cents and is 1.1 percent stronger this week versus the greenback.
Swaps data compiled by Bloomberg show traders see a 75 percent chance the Reserve Bank of Australia will cut its benchmark rate to an unprecedented 2.5 percent at its next meeting on Aug. 6. The probability was 45 percent at the start of the week. The key rate is currently at a record low of 2.75 percent.
Rate cut bets have climbed in a week when reports showed the unemployment rate rose and business conditions deteriorated to levels unseen since 2009. In China, Australia’s biggest trade destination, data showed imports unexpectedly declined for a second month in June.
“Consumption, confidence, it’s all heading south,” said OzForex’s Judge before the release of the housing data. “If we see a cut, we’re going to see a correction in the Aussie. But I think 90 U.S. cents will hold.”
China’s finance chief signaled the government may tolerate a slower pace of economic expansion than officials have previously indicated.
“We don’t think 6.5 percent or 7 percent will be a big problem,” Finance Minister Lou Jiwei said yesterday in Washington. “Please don’t forget that our expected GDP growth rate this year is 7 percent,” Lou said, referring to gross domestic product.
China’s statistics bureau reports second-quarter growth on July 15, with a 7.5 percent from last year as the median estimate in a Bloomberg News survey of economists.
“The focus will intensify on the softening growth outlook for Australia as the economy struggles to offset the slowdown from the end of the mining and resource boom,” Credit Suisse Group AG currency analysts Marcus Hettinger and Koon How Heng wrote in research dated yesterday. Australia’s currency “remains overvalued compared to our long-term fair value estimate” of around 70 U.S. cents, they wrote.