SYDNEY (Reuters) – The Australian dollar was near a three-month low on Friday as weak U.S. data fueled fears of a sharp slowdown in the world’s largest economy, sending investors flocking to the safe-haven yen and the Swiss francs.
It held at $0.6501 after falling 0.5% overnight to just above a three-month low of $0.6480 on Wednesday. Further support is around $0.6466, with resistance around $0.6580.
This week, yields fell 0.6%, the third straight week of decline, partly due to the expiration of the popular carry trade, in which investors borrowed the low-yielding yen to invest in higher-yielding currencies.
Against the yen, the Aussie hit a six-month low of 96.59 yen on Friday, taking its weekly loss to a hefty 3.4%. It also hit a six-month low for the Swiss franc, fetching 0.5654 francs.
The New Zealand dollar was luckier, holding at $0.5943 after little change on Thursday.
This week, yields rose 1.0%, largely due to gains against the Australian, as markets turned to price out any chance of a rate hike from the Reserve Bank of Australia after favorable inflation data.
Still, against the Japanese currency it reached a 2023 low of 88.33 yen
Data overnight showed U.S. manufacturing activity contracted at the fastest pace in eight months in July, while the employment gauge fell sharply, suggesting risks for the key payrolls report due Friday are tilted to the downside.
That put pressure on Wall Street and boosted bonds, prompting investors to bet there is even a 30% chance the U.S. Federal Reserve could cut rates by 50 basis points in September if the economy slows. More than three cuts have been priced in for the whole of 2024.
“With the market moving firmly towards the mantra that bad news is bad news for risk assets and sentiment, with swaps pricing in an element of more emergency cuts, the poor US jobs data will not be digested well at all,” says Chris Weston, head of the company. of research at Pepperstone.
This shift is being echoed in Australia, where investors are pricing in a 90% probability that the current cash rate of 4.35% could be cut in December. Swaps also imply a total easing of 80 basis points by the end of 2025, which is more than a doubling in a week.
However, bonds have had a good week due to the prospect of early interest rate cuts. Three-year bond futures rose 7 ticks to 96.37, the highest level since early April. That brought their weekly gains to a whopping 31 ticks, the biggest increase since July 2023.
Ten-year bonds also rose 6 ticks to a four-month high of 95.97, with a weekly gain of 28 ticks.
