'It's grim' as Australian dollar outlook deteriorates further on growing expectations of interest rate cut at RBA
The Australian dollar (Currency:AUD) is once again under significant selling pressure on Friday morning. A look at the latest spot rates shows:
- The pound versus Australian dollar exchange rate is 0.84 pct higher at 1.6669.
- The euro versus Australian dollar exchange rate is 0.93 pct higher at 1.4391.
- The Australian dollar versus US dollar is 1.32 pct lower at 0.9066.
- The Australian dollar versus New Zealand dollar is 1.32 pct down at 0.9068.
Please Note: These are spot market quotes to which your bank will affix a discretionary spread. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here. We have also published latest AUD forecasts from ANZ Research here.
We discussed the issue of an August RBA interest rate cut yesterday in the wake of poor unemployment figures out of the Australian economy, consensus on this view has pushed the Aussie yet lower today:
The case for RBA easing grows, pushing the Australian dollar lower
"The labor markets in Australia are clearly signalling that the economic boom, led by the massive demand for resources from China is over and growth is likely to be markedly weaker in the foreseeable future," says Boris Schlossberg at BK Asset Management, "investors therefore are worried that the RBA will continue to lower rates to spur demand and drive the AUD/USD exchange rate lower.
Despite the substantial depreciation in the Australian dollar over the past several months, the RBA still perceives the currency as overvalued and may target the 8500 level as it ultimate point of comfort.
Schlossberg's colleague at BK Asset management, Kathy Lien, says the outlook for both the Australian and New Zealand dollar is grim:
"After a 3-day rally, the Australian and New Zealand dollars resumed their slide against the greenback. The outlook for the AUD and NZD are grim given the recent weakness of Chinese and Australian data. Last night's Australian economic report contained weakness beneath the headlines.
"While job growth increased 10.5k in the month of June, all of the gains were driven by part time work as full time jobs declined 4.4k. The unemployment rate also rose to 5.7% from an upwardly revised 5.6%.
"The combination of weaker domestic and external conditions could prompt the RBA to cut rates again. Economic data was even weak in New Zealand. The country's business PMI index dropped from 59 to 54.7.
"Although new housing prices rose at a slower pace in May, the Canadian dollar rose strongly against the greenback and we may finally be seeing a catch up move in the loonie.
Australian housing finance numbers
The value of housing finance commitments rose in May (+2.4% m/m excl. refin.) continuing the solid gains experienced since mid 2012. Over the year to May, the value of housing finance is up 17.4% in trend terms.
Markedly better housing affordability (ten-year highs), improved buyer sentiment and substantial pent-up home-buyer demand are supporting growth in home sales, prices and lending.
Paul Braddick at ANZ Research says:
"The near outlook for housing finance remains solid. Housing market fundamentals continue to tighten, affordability is supportive (with interest rates expected to fall further) and homebuyer sentiment remains strong (in contrast to broader consumer sentiment)."