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James Hyerczyk

The Australian Dollar is trading lower on Thursday, moving further away from last week’s top at .7243 and closer to support around .7125 to .7055. The New Zealand Dollar was also moving lower but was a little steadier than the Aussie.

At 07:27 GMT, the AUD/USD is trading .7101, down 0.0061 or -0.85% and the NZD/USD is at .6630, down 0.0028 or -0.41%.

The weakness in the Australian Dollar is being fueled by a sharp drop in Aussie Government bond yields in response to comments from Reserve Bank of Australia (RBA) Governor Philip Lowe. The New Zealand Dollar fell mostly in sympathy with the Aussie and on expectations of negative interest rates in early 2021.

Aussie Sinks on Easing Hints

The Australian Dollar dropped to a one-week low after the central bank chief hinted of a possible rate cut or bond buying. The news drove down bond yields which made the Australian Dollar a less-attractive asset.

Australian Government bonds jumped 8 ticks overnight to their highest level since early April after RBA Governor Philip Lowe noted that 10-year yields were among the highest in the developed world and it was worth considering whether buying the debt in the market would bring those down.

While the central bank has been a regular purchaser of short-term debt, it has shunned the long end. Lowe also said further policy easing would have more impact now that coronavirus restrictions were being eased across much of the country.


Australian Jobs Report Signals Need for More Stimulus

The need for further stimulus was underlined by data showing 29,500 jobs were lost in October while the unemployment rate rose a tick to 6.9%.

Lowe earlier emphasized that creating jobs was the number one priority of both monetary and fiscal policy, and the central bank stood ready to do all it could to help.

Also weighing on the Aussie were more reports that Chinese importers were deferring purchases of Australian coal amid trade tensions between the two countries.

Short-Term Outlook

The AUD/USD is likely to continue to feel downside pressure ahead of next month’s RBA meeting where policymakers are likely to trim interest rates from a record low 0.25% to 0.1%.

Money markets are priced for a November rate cut and bond markets think the RBA could start buying further along the curve, with 10-year bond futures up 8.5 ticks to their highest since April.

“It is also likely the RBA will announce their intention to purchase more bonds in the 5-10 year part of the curve,” said CBA economist Kristina Clifton.

“Lower bond yields will have the first round effect of reducing interest costs for the government as they continue to provide a massive amount of fiscal support to the economy.”

For a look at all of today’s economic events, check out our economic calendar.
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