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Australian dollar sags on easing rates outlook

Australian dollar sags on easing rates outlook

The Australian dollar on Tuesday eased to its lowest levels since early January after the nation’s central bank flagged a further rate cut, while the British pound was hobbled by rising worries of a no-deal Brexit

With markets focused on U.S. Federal Reserve and Bank of Japan meetings later this week, traders latched on to minutes of the Reserve Bank of Australia’s (RBA) June meeting which showed policymakers were prepared to cut rates once more to revive wages growth and inflation.


“The market is already pricing in two rate cuts (in Australia), and there are some speculative moves to push the Aussie lower,” said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities.

The RBA minutes sent the Aussie slumping to $0.6833, its lowest since the flash crash of early January. It was last fetching $0.6837.

Markets are pricing in about 50% chance of another rate cut next month by the RBA, which delivered its first easing in almost three years just two weeks ago..

The pound was under pressure after former foreign minister Boris Johnson got a boost on Monday in his campaign to become prime minister as one of his former rivals and EU supporter Matt Hancock backed him.

That rattled markets as Johnson, the face of the official campaign to leave the European Union in the 2016 referendum, has promised to lead Britain out of the EU with or without a deal.

The pound, which tumbled to a 5-1/2-month low of $1.2532 on Monday, last traded at $1.2530. It also fell to its weakest level since January against the euro, which climbed to 89.74 pence, compared to a two-year low of 84.56 touched just over a month ago.


The pound could be in for a rough ride in coming days, with a raft of potentially market-moving events ahead, including consumer inflation and retail sales data, due on Wednesday and Thursday respectively, and the Bank of England’s policy announcement on Thursday.

The dollar eased slightly to 108.23 yen on Tuesday as a decline in Japanese stocks triggered about of risk aversion.

“The yen may have a little more room to rise if U.S. stocks take a hit and trigger a bout of risk aversion,” Daiwa Securities’ Ishizuki said.

The dollar index measuring its value against six major currencies also declined slightly to 97.446, undermined by the New York Fed’s business index fell this month by a record to reach its weakest level in more than 2-1/2 years.

The Fed’s two-day policy meeting starting later on Tuesday is the next major focus after markets have priced in more than two 25 basis-point rate cuts by year-end.

That marks a sharp contrast to the Fed’s official forecast in March, which showed policymakers deemed the next move would be a hike.

“As markets are now pricing in rate cuts in the second half of this year, the question is how the Fed will respond to such an outlook,” said Shinichiro Kadota, senior strategist at Barclays.


The euro was little changed in Asia, trading at $1.1231.Source: Reuters

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