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The Australian dollar remained near three-month lows on Friday. Weak U.S. data has increased fears of a sharp slowdown in the world’s largest economy, driving investors to seek safety in the yen and Swiss franc.
Picture: Aussie declines, trading at 0.65137 on the VT Markets app.
The Aussie stood at $0.6501, having dropped 0.5% overnight to just above its three-month low of $0.6480 reached on Wednesday. Support lies around $0.6466, with resistance at $0.6580.
For the week, the Australian dollar is down 0.6%, marking its third consecutive week of decline. This drop is partly due to the unwinding of the popular carry trade, where investors borrow the low-yielding yen to invest in higher-yield currencies.
Against the yen, the Aussie hit a six-month low of 96.59 yen on Friday, bringing the weekly loss to a substantial 3.4%. It also reached a six-month low against the Swiss franc, trading at 0.5654 francs.
Also read: Aussie and kiwi dollars struggle on China rate cuts; dollar drifts
The New Zealand dollar had better luck and held at $0.5943, finishing Thursday little changed. For the week, the kiwi is up 1.0%, largely due to gains against the Aussie. Markets are now pricing out any chance of an interest rate rise from the Reserve Bank of Australia following favourable inflation data.
Despite this, the New Zealand dollar touched a 2023 low of 88.33 yen against the Japanese currency.
You might be interestd: Aussie and Kiwi hold steady as bond rally fuels rate cut hopes
Overnight, data showed U.S. manufacturing activity contracted at the fastest pace in eight months in July. A gauge for employment also fell sharply, indicating that risks to the key payrolls report due on Friday are to the downside.
This data slammed Wall Street and boosted bonds, prompting traders to bet there is even a 30% chance that the U.S. Federal Reserve could cut rates by 50 basis points in September as the economy slows. For 2024, more than three rate cuts have been priced in.
Bonds, however, have had a good week due to the prospect of early rate cuts. Three-year bond futures rallied 7 ticks to 96.37, the highest since early April. This brought their weekly gain to 31 ticks, the biggest rise since July 2023. Ten-year bonds also rose 6 ticks to a four-month top of 95.97, with a weekly gain of 28 ticks.
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