The Australian and New Zealand dollars fell on Monday amid intense speculation the Reserve Bank of Australia (RBA) will resume cutting interest rates this week, while a survey of Chinese manufacturing showed more evidence of economic slowdown. The Australian dollar dropped to $0.7821, from Friday's peak of $0.7850 and was well off a three-month high of $0.8077 touched last week. Support was found at a major retracement level of $0.7805 and a break would target $0.7772.
"It's a frenetic few days ahead in Australia," said Stephen Walters, chief economist at J.P. Morgan, referring to the RBA's monthly rate decision and quarterly monetary policy statement, as well as key economic data including jobs. The Aussie was pressured in part by growing expectations the central bank will cut interest rates to a record low 2.0 percent at its May 5 policy meeting.
"The core structural arguments for easier policy remain in place, including the falling terms of trade, fragile confidence and still-elevated AUD," said J.P. Morgan's Walters. Interbank futures give a two-in-three chance of a cut, from 58 percent last week. They are almost fully priced for a quarter-point cut by June. Renewed concerns about growth in China, Australia's top export market, weighed on the Aussie with a private survey showing a big drop in April manufacturing activity.
The New Zealand dollar was on the backfoot at around $0.7525, against $0.7580 in late local trading on Friday, as it tracked a weaker Aussie dollar. The Kiwi was sitting around the 55-day moving average with support below that at $0.7480 and resistance at $0.7550. The week is littered with plenty of event risk. Domestically there is the latest dairy auction and first quarter wages and labour data, with expectations for tame wage inflation and solid jobs growth resulting in a slight fall in the jobless rate.
New Zealand government bonds were trading with an offered tone, sending yields a couple of ticks higher across the curve. Australian government bond futures were mixed, with the three-year bond contract up 1 tick at 98.090. The 10-year contract was down half a tick to 97.3150.