Australia Dollar Drops to Lowest Since 2009 on RBA Rate-Cut Bets

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Australia Dollar Drops to Lowest Since 2009 on RBA Rate-Cut Bets(Bloomberg) -- Australia’s dollar slid to its lowest in a decade on speculation the nation’s central bank will follow its New Zealand counterpart in delivering a bigger-than-expected interest-rate cut.The Aussie dropped as much as 1.2% to 66.77 U.S. cents, breaching a low set during the January flash crash. The nation’s three-year bond yield declined seven basis points to a record 0.631%, compared with the policy rate of 1%.The Reserve Bank of New Zealand surprised traders on Wednesday with a 50-basis point rate cut as it sought to pre-empt the impact of slowing global growth, fueling bets the RBA will follow suit. With the move coming after China allowed the yuan to weaken past a key level and U.S. President Donald Trump demanding more easing from the Federal Reserve, traders may start to speculate about a cycle of competitive devaluation.“We’re seeing insurance cuts from across the board now and I expect we’ll definitely see more to come,” said Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings in Singapore. “Clearly the external uncertainty from the trade war is driving considerations of easing by every central bank in the region.”New Zealand’s dollar tumbled as much as 2.3% to 63.78 U.S. cents, while the nation’s two-year bond yield fell as much as 20 basis points to a record 0.767%. Traders are now pricing in a 70% chance the RBA will cut by 25 basis points at its September meeting.Still, markets may be getting ahead of themselves in expecting the RBNZ to influence the RBA’s next move, according to macro hedge fund Ensemble Capital. Any cooling in trade tensions may see the RBA rely more on economic data to drive their next move, said Singapore-based chief investment officer Damien Loh.“Markets have a tendency to try and front-run the central bank,” he said. “Over the course of the month, I think the Aussie can remain roughly unchanged.”\--With assistance from Stephen Spratt.To contact the reporters on this story: Ruth Carson in Singapore at rliew6@bloomberg.net;Chester Yung in Singapore at kyung33@bloomberg.netTo contact the editors responsible for this story: Tan Hwee Ann at hatan@bloomberg.net, Nicholas ReynoldsFor more articles like this, please visit us at bloomberg.com©2019 Bloomberg L.P.


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