Aussie Falls on Slide in Building Approvals as RBA Holds Rates

  • Traders pricing in one RBA interest-rate cut by August
  • Aussie will drop to 66 cents in six months: Macquarie's Berry

The Australian dollar weakened after building approvals fell more than economists predicted even as the central bank refrained from cutting interest rates at a policy meeting Tuesday.

The Aussie dropped against all 16 of its major counterparts as the Bureau of Statistics said approvals slid 7.5 percent in January, surpassing the 3 percent reduction analysts forecast. The currency also slipped as separate data showed net exports made no contribution to economic growth in the fourth quarter. The Reserve Bank of Australia left its benchmark rate at a record-low 2 percent.

“There’s room for the Australian dollar to fall further as the market increasingly realizes the risks here,” said Gareth Berry, a foreign-exchange and rates strategist at Macquarie Bank Ltd. in Singapore, speaking before the central bank’s decision.

Australia’s dollar weakened 0.1 percent to 71.34 U.S. cents as of 3:22 p.m. in Sydney after declining as much as 0.5 percent before the RBA decision. The currency has tumbled 2.6 percent in the past three months, the worst performer after Britain’s pound among its Group-of-10 peers.

Lower Rates

The Aussie will probably depreciate to 66 cents in six months, Macquarie Bank’s Berry said. The central bank is poised to cut rates in May after unemployment climbed back to 6 percent and data showed firms are planning to reduce spending, he said. 

“Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand,” the RBA said in its statement Tuesday.

Traders are anticipating one rate cut by August and are almost fully pricing in a reduction to 1.5 percent in a year’s time.

“The forward guidance is very similar to last month’s,” said Joseph Capurso, a currency strategist at Commonwealth Bank of Australia in Sydney. “No implications for Aussie or rates here.”

The currency will probably end the year at 70 cents, he said.

China’s official factory gauge extended its stretch of deteriorating conditions to a record seven months, with a bigger-than-expected decline in the manufacturing purchasing managers index.

“The Aussie still seems to carry a significant risk premium for being so exposed to China’s economy,” said Sean Callow, a foreign-exchange strategist in Sydney at Westpac Banking Corp.

Australia’s dollar will probably trade between 70 cents and 72.50 cents in the next few days, Callow said. The recovery in prices of iron-ore, Australia’s biggest export, and speculation the Federal Reserve will delay raising interest rates have failed to boost the Aussie to 73 cents, he said.

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