SYDNEY: The Australian dollar fell to a 10-day low on Friday as markets pared the chance of a rate hike on dovish comments from a top central banker, while bonds got much needed relief to end a brutal week of sell-offs.
With the first US presidential debate out of the way and evoking a muted market reaction so far, traders are looking ahead to the US core personal consumption expenditures (PCE) price index due later on Friday, after inflation figures in both Canada and Australia surprised on the upside.
The Aussie fell 0.3% to $0.6624, the lowest since June 18.
It failed to gain much ground overnight even as the US dollar eased slightly as Andrew Hauser, the Reserve Bank of Australia Deputy Governor, downplayed the impact of a hot inflation report for May.
It is headed for a weekly decline of 0.2%, although the US PCE data is bound to whip up volatility later in the day.
Support is now around $0.6580. Late on Thursday, RBA’s Hauser said it would be a bad mistake to set policy on the basis of one inflation number.
The RBA will have the outcome of the full second quarter inflation report, an update on labour market and readings on consumer spending before its August meeting.
“An ugly June quarter CPI release together with 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 currently available information,” said Luci Ellis, chief economist at Westpac.
Swaps are back to implying a 30% chance of a quarter-point rate hike in August, compared with a 42% a day ago.
Asian currencies: Aussie supported after inflation spike
Still, the prospects of any rate cuts are gone for this year. Bonds got some relief on Friday, after suffering the biggest two day declines earlier this week in more than a year.
Three-year government bond futures rose 5 ticks to 95.9, pulling away from seven-month lows.
They, however, still fell 21 ticks for the week, the biggest weekly drop since April.
The kiwi fell 0.2% to hit a fresh six-week low of $0.6068 on Friday and was testing the major support level of the 200-day moving average at $0.6069. It is set for a weekly decline of 0.8%.
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