The Australian dollar hovered close to 11-month lows against a firm US currency on Monday, and hit a five-month low against the yen on the back of a fresh bout of risk aversion. Domestic economic data was mixed, doing little to change expectations of only modest gross domestic product (GDP) growth in the second quarter.
While both trade and inventories were a drag on the economy, company profits in the second-quarter surged. Second-quarter GDP is due on September 3 and analysts expect only a subdued rise of around 0.4 percent. In this soft economic backdrop, investors are bracing for a string of rate cuts, starting on Tuesday.
The futures market is pricing in a quarter percentage point rate cut from the Reserve Bank of Australia (RBA), the fiirst reduction in seven years. The Aussie dollar was at $0.8536/41 against the US dollar, down from $0.8622/24 late here on Thursday and not far off an 11-month low of $0.8493 hit late last month. It fell as low as $0.8527 during the session.
The Aussie fell to 92.40 yen, its lowest since early April, after regional stock markets dropped, forcing investors to pare leveraged carry trade positions. "The US dollar's strength and some unwinding of carry trades have driven the Aussie lower," said Besa Deda, senior markets strategist at St George Bank. With a rate cut already priced in on Tuesday, Deda said the outlook would be a key focus.
Analysts are arguing for more caution on monetary policy as inflation pressures remained stubbornly high. The TD Securities-Melbourne Institute monthly inflation gauge rose 0.1 percent in August, after a 0.4 percent increase in July. But excluding petrol prices, the gauge was up a record 0.6 percent in August.