The Australian dollar is holding steady as markets waited on the next developments in the Sino-US trade dispute, while bond yields reached record lows as investors wagered heavily on rate cuts at home.
The Aussie dollar was parked at 69.31 US cents on Monday and above its recent five-month low of 68.65 US cents – a level that has turned into strong chart support after surviving several tests.
The dollar had been pressured, and bonds buoyed, by mounting expectations of falling interest rates.
Just last week, Reserve Bank of Australia Governor Philip Lowe said a rate cut would be considered at the next policy meeting on June 4, leading all four of the major banks to tip a quarter-point easing in the 1.5 per cent cash rate.
Futures imply an 84 per cent probability of a cut next week with a move to 1 per cent fully priced by October.
The market has gone even further and priced in a real chance of reaching 0.75 per cent by the middle of next year.
“Westpac is now forecasting three cuts in 2019 in June; August and November to push the cash rate from 1.5 per cent to 0.75 per cent and to hold at that level through 2020,” Westpac chief economist Bill Evans said.
“While back in February we expected the low in the AUD to be 68 (US cents), we have now shaved that forecast back to 66 (US cents) by end 2019,” he added.
“This forecast is also predicated on our constructive view on commodity prices and a steady US federal funds rate over 2019.”
The bond market is also moving in that direction, with yields on three-year paper hitting a fresh record low at 1.09 per cent, a world away from where they started this year at 1.82 per cent.
The 10-year bond future eased back two ticks on Monday to 98.4500, but that was from an all-time high.
Some support for the Aussie has come from surging prices for iron ore, Australia’s biggest export earner.
Chinese futures for the ore climbed almost 5.0 per cent last week to top $US100 a tonne, a huge windfall to miners given the Aussie is also so weak against the US currency.