- AUD/USD drops to two-week lows below 0.6780 on dovish RBA expectations.
- The big four Australian banks expect the RBA to cut rates in October and December.
The AUD/USD is losing altitude as expectations for the Reserve Bank of Australia to cut the interest rates in October have surged in the last 24 hours.
The currency pair, which traded close to 0.68 two hours ago, fell to 0.6778 – the lowest level since Sept. 4 – a few minutes before press time.
As of writing, the pair is seen at 0.6783, representing 0.10% losses on the day, having dropped 0.52% and 0.55% in the preceding two days.
The probability of RBA cutting rates in October by 25 basis points has increased sharply since Thursday’s Aussie data, which showed an uptick in the jobless rate to 5.3% and a drop in the full-time jobs in August.
Notably, the big four Australian banks – Westpac, Australia New Zealand Bank, Commonwealth Bank, National Bank of Australia (NAB) – expect the RBA to cut rates in October and December versus their previous forecast of a rate cut in November and February. (Westpac has been predicting rate cuts in October and February next year since before the labor data).
Add to that, the Federal Reserve’s (Fed) hawkish rate cut and the path of least resistance for the AUD appears to be on the downside. Put simply, the AUD is likely to trade on the defensive during the day ahead.
The Fed on Wednesday cut rates by 25 basis points as expected but the officials were split on the need for further easing in the near-term. That seems to have convinced many observers that the central bank will stand pat for the rest of the year.