The Australian dollar edged lower on Tuesday after the country's top central banker said the currency would fall materially in the future due to deteriorating terms of trade. The Aussie slipped half a cent to a session low of $0.9517 after Reserve Bank of Australia (RBA) Governor Glenn Stevens said the current exchange rate was not supported by the nation's economic fundamentals.
"The terms of trade are likely to fall, not rise, from here. So it seems quite likely that at some point in the future the Australian dollar will be materially lower than it is today." It last fetched $0.9522 with dealers forecasting more downside. The New Zealand dollar was trading with a soft tone at $0.8267, holding around a three-week low, as local investors returned from a long weekend.
"We can still see some weakness on the Aussie... Traders remain bearish until they see a strong sign of reversal," said Vito Henhoto, a senior technical analyst at FX brokerage firm Invast Securities. The Aussie has climbed almost 8 percent since late August to reach a five-month peak last week, in large part due to the Federal Reserve's decision to delay the tapering of its asset purchasing programme.
Support is found at $0.9520, the 50 percent retracement of the $0.9280-$0.9758 move. A break below would target $0.9410, a major chart level. The Aussie also lost ground against the yen and euro as the RBA comments prompted markets to revise their rate outlook.
They still largely expect the central bank to hold rates steady at a record low of 2.5 percent at next week's monthly policy meeting but the swap market has now given up pricing in any tightening for the next 12 months. It had a total of 4 basis points worth of rate hikes on Monday. The kiwi was hampered by softness in the neighbouring Aussie dollar after Stevens' currency comments. Investors are expected to stay cautious ahead of the statements from the Reserve Bank of New Zealand and Federal Reserve later in the week. Most predict the Fed to delay any stimulus tapering to at least March next year.
"Traders prefer selling the New Zealand dollar into any rallies, following Governor Wheeler's (recent) comments indicating loan to value restrictions may be doing their part to delay cash rate hikes," said ASB Bank economist Christina Leung.