The Aussie is down 1.2% so far this week, partly wiping out two consecutive weekly gains, and on track for its worst performance since a 1.6% drop in the week ended Aug 2. The losses in the Aussie began on Thursday after official data showed the country's unemployment rate rose to a one-year high of 5.3% in August. The data prompted the Commonwealth Bank of Australia, National Australia Bank and Citi to bring forward their forecasts for a rate cut by a month, joining some of their peers and falling into line with market expectations.
Financial futures are pricing a more than 80% chance of a cut to 0.75% next month. If the Reserve Bank of Australia (RBA) does lower its cash rate at its Oct. 1 monthly policy meeting, it will be the third reduction this year following back-to-back easings in June and July to 1%. A government announcement on Thursday that it has narrowly missed reaching a budget surplus in the year-ended June 30 also weighed on the Aussie.
Ben Udy, a Singapore-based economist at Capital Economics, said that indicated the government was "unlikely to deliver any additional fiscal stimulus in the near term." "That leaves the RBA to do the heavy lifting to support the economy," Udy wrote in a note. "And given the rise in the unemployment rate in August, there's a growing chance the Bank will cut rates in October."
Investor attention will next be on an expected economic update from RBA Governor Philip Lowe in a dinner speech on Tuesday, which could further shape market expectations. The New Zealand dollar was last a shade weaker at a two-week low of $0.6285. For the week, the kiwi was down about 1.4%, headed for its second straight weekly loss. The kiwi has been under pressure for much of this year as an economic slowdown has prompted the country's central bank to sharply lower its benchmark rate to an all-time low of 1%.
Data out on Thursday showed New Zealand's economy grew at the slowest pace since 2013, bolstering the case for further interest rate cuts. New Zealand government bonds were slightly higher, sending yields about 3 basis lower at the long-end of the curve. Australian government bond futures inched up, with the three-year bond contract 3 ticks higher at 99.290. The 10-year contract added 3.5 ticks to 98.9800.