Aussie set for loss on rate cut views

The Australian dollar is on track for its worst weekly showing in more than one and a half months as expectations of a rate cut in October gathered momentum.

The Australian dollar was last 0.08 per cent higher at 67.95 US cents on Friday after hitting a two-week trough of 67.79 US cents earlier in the day.

The Aussie is down 1.2 per cent so far this week, partly wiping out two consecutive weekly gains, and on track for its worst performance since a 1.6 per cent drop in the week ended August 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 per cent in August.

The data prompted the Commonwealth Bank, NAB 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 per cent chance of a cut to 0.75 per cent next month.

If the Reserve Bank of Australia does lower its cash rate at its October 1 monthly policy meeting, it will be the third reduction this year following back-to-back easings in June and July to 1.0 per cent.

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.

Australian government bond futures inched up, with the three-year bond contract three ticks higher at 99.290.

The 10-year contract added 3.5 ticks to 98.9800.

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