AUD/USD en route to three-year lows on rate prospects

Australian dollar reduced its value against its US counterpart on Monday, heading toward almost three-year lows on grown speculations that the Reserve Bank of Australia (RBA) might reduce interest rates in the next month.

AUD/USD fell to a session low at 0.9041 during the Asian trade, as the pair lost almost 1% in the end of the last week. Support was expected at July 3rd low and 34-month low, 0.9034, while resistance was likely to be met at July 5th high, 0.9179.

“It’s inevitable that Aussie pushes lower,” said Robert Rennie, the chief currency strategist at Westpac Banking Corp. (WBC) in Sydney, cited by Bloomberg. “Lower rates are clearly required.”, he also added.

The yield on Australia’s 10-year government bond increased by 11 basis points, or 0.11% to 3.928%, after hitting 3.998%, which was the highest level since June 24th, Bloomberg imparted. It was evident that Australias yield advantage over the United States was diminishing, because the Federal Reserve Bank intended to scale back its Quantitative Easing by the end of this year.

Earlier on Monday it was reported that Australia and New Zealand Banking Group (ANZ) Job Advertisements index dropped by 1.8% for the fourth consecutive month in June on a monthly basis, while seasonally adjusted data during the preceding month showed a drop by 2.5%.

Meanwhile, in the United States, the Department of Labor said that economy added 195 000 job positions in June, more than the expected increase by 165 000. At the same time, Unemployment rate remained unchanged at 7.6% in the month of June, still well above the 6.5% target, which the Federal Reserve Bank has pointed as necessary before it considers an increase in interest rates. Improving situation in the labour market, however, could give the central bank room to taper asset purchases. What is more, speculations arose that the process of tapering could be initiated this September.

It was exactly the above mentioned speculation along with bets of a further RBA interest rate reduction, that have made the Australian dollar the worst performing currency in the last three months among 10 developed-market currencies, tracked by Bloomberg Correlation-Weighted Indexes. Aussie has decreased by 9.6%, compared with a 5.6% rise for the US dollar. Some traders think, that AUD/USD pair could breach the level of 0.9000 in a matter of days, as the pair has not traded that low since 2010.

In the mean time, Aussie declined against the Japanese yen, as AUD/JPY cross erased 0.19% to reach 91.53. AUD/NZD pair, on the other hand, decreased by 0.17% to reach 1.1738.