Dollars slide on rate cut bets

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July 19, 2016 8:26 PM

The Australian dollar fell after minutes from the latest central bank meeting left the door open for a move in August

An employee counts Australian dollar banknotes at an exchange office in downtown Cairo, Egypt, April 19, 2016. REUTERS/Amr Abdallah Dalsh

The Australian dollar fell 1 percent to a 11-day low on Tuesday while the New Zealand dollar hit a three-week trough, as investors ramped up bets that both central banks could ease monetary policy as early as next month.

The Australian dollar fell after minutes from the latest central bank meeting left the door open for a move in August while New Zealand's currency was dented after the Reserve Bank stepped up efforts to impose fresh curbs on a hot housing market - a move seen as paving the way for an interest rate cut.

The kiwi hit a three-week low of $0.7014, and was last trading at $0.7020, down 1.3 percent on the day. With lower risk appetite hitting higher-yielding currencies amid a pull-back in oil prices, the Australian dollar also fell, dipping to $0.7504.

"The RBA minutes further supported our expectations for a rate cut on Aug 2, where the markets are currently pricing a 55 percent probability," said Hans Redeker, head of currency strategy at Morgan Stanley.

"The rhetoric in the minutes was similar to the statement but kept the door wide open for a cut. Currency markets will now be focused on the second-quarter inflation data on July 27, which if it undershoots as it did in New Zealand, would put the Australian dollar under selling pressure."

In Britain, the focus will be on inflation data for June. It is forecast to show a reading of 0.2 percent for the month and a rise of 0.4 percent annually. A figure below forecasts would add to the case for monetary easing in August and put the pound under pressure, traders said.

Before the data, sterling was down 0.4 percent at $1.3211 , giving up some of the gains of recent days.

The dollar retreated after hitting a 3-1/2-week high of 106.33 yen, marking a gain of more than 6 percent from its July 8 low of 99.99 yen. It rallied from that low as the yen buckled under growing expectations of more monetary easing by the Bank of Japan, a broad recovery in risk appetite and speculation about M&A-related yen selling.

Speculators have been betting that the Bank of Japan will further ease policy at its July 28-29 meeting, as the government prepares new fiscal stimulus to boost the economy.

"There seems to be some sporadic profit-taking by overseas (non-Japanese) players," said a Singapore-based trader in Japanese bank.

The dollar eased 0.3 percent to 105.90 yen after hitting 106.33 yen, its highest level since June 24.

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