Aussie Dollar Falls to Lowest Since July as RBA Hike Bets Fade

(Bloomberg) -- The Australian dollar touched the lowest level since early July, extending its decline after domestic labor data pushed traders to scale back expectations of interest rate increases from the Reserve Bank of Australia. 

The currency dropped as much as 1.1% to touch $0.6894 on Thursday, lagging behind all peers in the Group of 10 against the greenback. Australia’s higher unemployment and job losses last month showed signs of softer labor market, limiting the chances of another rate increase from the central bank. 

“The surprise rise in unemployment has been a clear drag on the Australian dollar, raising the risk that the RBA has hiked enough and is slowing the economy,” said Tim Baker, head of foreign-exchange research for the Americas at Deutsche Bank. “The artificial-intelligence selloff hasn’t helped either” as the currency is sensitive to risk appetite, he added. 

Stocks have been sliding as a decline in the AI trade gathered speed and pushed investors to seek safety in bonds. So far this year, the Aussie has been one of the best performers in the Group of 10 against its US counterpart, buoyed by the RBA’s aggressive rate hiking cycle. Policymakers raised rates in September, bringing this year’s increase to one percentage point. 

Nomura strategists Dominic Bunning and Yusuke Miyairi ended a trade recommendation betting in favor of the Australian dollar against the British as the pair reached its stop-loss level during the past 24 hours, according to a Oct. 15 note. They cited stronger economic expansion in the UK and weak labor market data in Australia as reasons for exiting their view, which they started in early September.

Hedge funds have been curtailing their bullish views on the Aussie for the past three weeks, while still remaining positive on the currency since December.

“For now this data affirms a November hold,” said Maximillian Lin, a strategist at Canadian Imperial Bank of Commerce, referring to the next RBA policy meeting. “We still think a December hike is possible” as jobs data is “notoriously volatile,” he added. 

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