SYDNEY: The Australian and New Zealand dollars dipped after a surprise interest rate cut by the Bank of Canada (BoC) fueled speculation the Reserve Bank of Australia (RBA) could also ease soon.
The Australian dollar slipped to US$0.8083, having shed more than 1% overnight. It was pulling closer to a six-year trough of US$0.8033 set earlier in the month. Resistance was found around US$0.8100.
The New Zealand dollar tumbled to its lowest in 2½ years at US$0.7545, having lost two cents in as many sessions. Support is seen at US$0.7480, with resistance at US$0.7620.
The sell-off in the Aussie and kiwi came after Canada cut rates to provide insurance against the risks of financial instability and lower inflation from a slump in oil prices.
“AUD and NZD sold off in sympathy with CAD following the BoC decision as investors debated the likelihood for the RBA to follow the BoC –sooner rather than later,” said CitiFX Wire in a note.
Markets moved to narrow the odds of an easing in February to one-in-three, from one-in-five just last week. They are fully priced for a move by April.
The BoC was just the latest central bank to wrong foot markets, following the Swiss National Bank’s decision last week to abandon its currency cap.
Later today, the European Central Bank is widely expected to unveil a plan to buy hundreds of billions of euros of sovereign bonds in a last-ditch attempt to forestall deflation.
In New Zealand, markets are now pricing six basis points of cuts over the next 12 months with the Reserve Bank of NZ holding its policy meeting next week.
Some suspect the bank could drop its tightening bias, but stop well short of opening the door to an easing.
“We don’t think the RBNZ will cut rates, or even entertain the idea, under current conditions,” said Westpac chief economist Dominick Stephens.
He cited strong economic growth, driven by housing and construction sectors, and record migration.
However, he expected the bank to adopt a neutral stance, allowing it to keep its options open, while renewing its calls for a lower currency.
New Zealand government bonds had a bid tone, with yields as much as five basis points lower.
Talk of easing underpinned Australian government bond futures with the yield curve steepening. The three-year bond contract jumped six ticks to 97.980, having touched a 2½-year peak of 98.020. The 10-year contract added 2.5 ticks to 96.470.
