Australian dollar heads for 4th week of losses

The Australian dollar was heading for a fourth straight week of losses on Friday as uncertainty shrouded the Sino-US trade talks, while mounting speculation of more rate cuts at home tugged bond yields sharply lower.

The Aussie was flat at $0.6764, having eased 0.3% for the week so far and almost 1.9% for November as a whole. The break of chart support at $0.6770 also risked a further pullback to $0.6724.

That was a marked contrast to the New Zealand dollar which was heading for its third week of gains helped by a run of upbeat domestic data. The kiwi was trading at $0.6420, up 0.3% for the week so far.

The Aussie has been under fire since the Reserve Bank of Australia (RBA) indicated rates would have to fall to just 0.25% before it considered quantitative easing, leading markets to price in not just one cut next year but two.

Futures are fully priced for a quarter point easing to 0.5% by April and imply around a 44% chance of a move to 0.25% by year end. The only positive for the Aussie was that the RBA had shown no appetite for moving at its next policy meeting on Dec. 3, giving it a break until the first meeting of 2020 in February. Bonds have been much more energetic with yields on three-year paper dropping 13 basis points just this week to 0.61%, not far from the all-time low of 0.57%. Yields on 10-year bonds were off 8 basis points for the week at 1.01% and approaching their record trough of 0.85%.

The rally has been more limited for New Zealand bonds with 10-year yields down 5 basis points for the week at 1.32%, so widening the spread over Aussie debt.

"It seems unlikely that the RBA will opt for a surprise rate cut in December where just 3 basis points is priced," said Tom Nash, a strategist at HSBC Bank Australia. "Near-term policy inertia favours relative currency stability versus the USD."

"AUD-USD continues to trade within the same tight $0.67-0.69 range that has held for the past four months, while three-month implied FX volatility recently reached the lowest levels this century," he added. "We maintain our long-term forecast of $0.68. It would likely take something dramatic from offshore - perhaps related to US-China "phase one" trade deal negotiations - to trigger a breakout."