SYDNEY: The Australian dollar skidded to four-month lows on Wednesday as surprisingly soft economic data led markets to bring forward the likely timing of future rate cuts, triggering a rally in bonds.
Selling gathered pace through the afternoon to send the Aussie down 1% to $0.6422, breaking support at $0.6443.
The next chart bulwark is a trough from August at $0.6349.
The kiwi dollar was dragged down in its wake, losing 0.7% to $0.5842.
Major support comes in at $0.5797.
The retreat followed data showing Australia’s economy grew just 0.3% in the third quarter when markets had been priced for at least a 0.4% rebound.
Annual growth actually slowed further to 0.8%, the lowest since the pandemic and a result typically only seen during recessions.
Indeed, without strength in government spending the economy would already be in a technical recession.
That saw markets pull forward a first rate cut to April from May, while the chance of a move in February shifted to 44% from 27%.
The cash rate has been at 4.35% for more than a year now. Yields on Australian 10-year bonds dropped 6 basis points to a six-week low of 4.257%, while three-year bond futures bounced 7 ticks to 96.160.
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Investors still see little chance the Reserve Bank of Australia (RBA) would ease at the next meeting on Dec. 10, given it had only just reiterated that a move was unlikely in the near term given stubborn inflation.
“The biggest disappointment was consumer spending, which was unchanged, and private investment was broadly flat too,” said Marcel Thieliant, head of Asia-Pacific economics at Capital Economics. “Instead, the main show in town remained public demand, which rose by an extraordinary 2.3% q/q.”
“The weakness adds to the case for looser monetary policy and we’re sticking to our view that the RBA will start a short easing cycle in the second quarter of next year.”
The Reserve Bank of New Zealand has already slashed its rates by 125 basis points, leaving them in the rare position of being lower than Australia’s at 4.25%, and projected more to come.
Markets have New Zealand’s cash rate down to around 3.33% by the end of next year, compared with 3.77% for the RBA.
Dairy prices remain one bright spot for New Zealand, with ANZ’s commodity index up a hefty 2.9% in November.
Butter is at record highs having climbed 44% in the past year, delivering a windfall for farmers and government tax receipts.