Aussie Dollar Sinks With Kiwi as Bets for August Rate Cuts Mount

Updated on
  • RBA leaves policy options open in minutes from July meeting
  • RBNZ housing measures seen paving way for easing in August

The Australian and New Zealand dollars dropped against their major peers as traders raised bets that both countries’ central banks will cut interest rates next month.

The Aussie extended its retreat from a two-month high reached Friday as minutes from the Reserve Bank of Australia’s July meeting released Tuesday showed policy makers kept their options open and reiterated that a higher currency could complicate adjustments in the economy. The kiwi sank to its lowest in three weeks as the Reserve Bank of New Zealand moved to rein in a housing boom, paving the way for lower borrowing costs. The yen gained, after earlier touching the weakest level since June 24, when the “Leave” victory in the U.K. referendum was announced.

“The very tight timeline proposed for implementing the added restrictions reinforces the likelihood of the RBNZ cutting in August, especially following softer New Zealand second-quarter inflation,” said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia in Sydney. “RBA July meeting minutes left the door open to more rate cuts, which is weighing on Aussie.”

The Australian dollar fell 1 percent to 75.19 U.S. cents as of 6:46 a.m. in London, after reaching 76.76 on Friday for the first time since May 3. The kiwi dropped 1.2 percent to 70.31 U.S. cents, after touching 70.14, a level unseen since June 28.

Yen Gains

The yen rose 0.2 percent to 105.96 per dollar, after earlier weakening to 106.33. It appreciated 0.2 percent to 117.33 per euro.

New Zealand’s dollar has fallen 3.7 percent over the past five days, the most among major currencies. The Aussie is the second-worst performer, sliding 1.3 percent.

Swaps traders are pricing in a 56 percent chance of lower Australian interest rates at the Aug. 2 meeting, and a 77 percent probability of a cut in New Zealand rates on Aug. 11.

“The run up in the Aussie from 73 cents to 76 cents post-Brexit has been largely driven by an improvement in risk sentiment,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. “The move is running out of steam.”

— With assistance by Lilian Karunungan

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