AUD/USD retreated to a fresh one-week low on Thursday as an announcement by the Reserve Bank of Australia raised speculation that interest rates might be cut in the near term, while the bank might increase purchases of longer-term government bonds.
10-year Australian bonds rallied on Thursday after RBA Governor Philip Lowe said yields were among the highest in the developed world and the central bank could consider if purchasing the debt in the market would drive yields lower.
“It is also likely the RBA will announce their intention to purchase more bonds in the 5‑10 year part of the curve,” CBA economist Kristina Clifton said.
“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.”
The RBA Governor also said that additional monetary policy easing would have a greater impact, with COVID-19 pandemic-related restrictions now being relaxed across much of Australia.
Analysts expect the central bank to cut the official cash rate to 0.10% in November from the current level of 0.25%.
Meanwhile, the latest report by the Australian Bureau of Statistics showed earlier Thursday that economy had lost 29,500 jobs between September and August, while market consensus had pointed to a drop of 35,000. The rate of unemployment in the country rose to 6.9% in September from 6.8% in August, as the number of unemployed persons surged by 11,300 to 937,400.
As of 7:39 GMT on Thursday AUD/USD was retreating 0.88% to trade at 0.7098, after earlier touching an intraday low of 0.7096, or a level not seen since October 7th (0.7096). The major pair has dropped 0.80% so far in October, after retreating 2.91% in September, its first monthly loss since March.
On today’s economic calendar, a report by the US Labor Department at 12:30 GMT may show the number of people in the country, who filed for unemployment assistance for the first time during the business week ended October 9th, probably eased to 825,000, according to market expectations, from 840,000 in the preceding week.
Market players will be also expecting the latest data on manufacturing activity in New York and Philadelphia due out at 12:30 GMT.
Bond Yield Spread
The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 1.4 basis points (0.014%) as of 6:15 GMT on Thursday, or unchanged compared to October 14th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 0.7168
R1 – 0.7184
R2 – 0.7207
R3 – 0.7222
R4 – 0.7238
S1 – 0.7146
S2 – 0.7130
S3 – 0.7107
S4 – 0.7085