The Australian and New Zealand dollars steadied on Monday, clawing back some of their losses in the previous session after the greenback firmed on a stronger-than-expected US jobs report. Analysts expect the antipodean currencies to remain weak as their respective central banks are likely to keep policy easy amid slowing economic growth and lukewarm inflation.
The Aussie dollar was last up 0.1% at $0.6988 after falling 0.7% on Friday as US non-farm payrolls came in at 224,000, surpassing forecasts for 162,000 leading investors to pare their expectations for US rate cuts. Bets on more aggressive interest rate cuts by the US Federal Reserve later this month are off, with the market now pricing a 27 basis points easing, from 33 basis points prior to payrolls.
Fed Chair Jerome Powell will provide further cues on the near-term outlook for monetary policy this week at his semi-annual testimony to the US Congress. The Aussie has been trapped in a narrow range since the past month despite two rate cuts by the Reserve Bank of Australia (RBA) that took the official cash rate to an all-time low of 1.00%.
"The issue for the RBA with respect to the currency is that, until now, US rate cut expectations have neutralised the RBA's impact on the Australian dollar," Westpac said in a note. For the year ahead, Fed futures are pricing in about 90 basis points of cuts whereas in Australia there is a real chance of another 25 basis points of cut.
Despite expectations for more cuts in the United States, Westpac expects the Aussie to underperform the greenback in the coming six months, going as low as $0.6800. "In stark contrast to the United States, Australia finds itself experiencing growth materially below trend, principally as a result of a weak consumer, and with significant questions over the efficacy of policy from this point forward," it said.
"As a result, while Westpac and the market's core expectation is for one more cut, risks are heavily skewed to the downside.
A further cut to 0.50% and the use of extraordinary policy tools are real possibilities."
The New Zealand dollar was last up 0.25% at $0.6642 after it fell 0.9% on Friday for its biggest one-day percentage loss since mid-June. For the week, the currency has dropped 1.4%.
The Reserve Bank of New Zealand (RBNZ) is also on an easing path, with markets implying around a 69% chance of a quarter-point cut in August. A further easing to 1% is priced in by mid-2020.
New Zealand government bonds were slightly weaker with yields up about 2 basis points across the curve. Australian government bond futures eased, with the three-year bond contract down 3.5 ticks at 99.060. The 10-year contract slipped 4.5 ticks to 98.665.