Aussie Dollar Falls on GDP Growth Miss

The Australian dollar weakened to a two-month low on Wednesday as disappointing economic data further proved the loss of domestic momentum, reinforcing market expectations for a rate reduction from the Reserve Bank of Australia (RBA).

The Aussie dropped 0.8 percent to as low as $0.7024 against its US counterpart, its lowest level since January 4 after figures showed gross domestic product (GDP) grew by 0.2 percent in the December quarter, ending below forecast of 0.3 percent.

The Aussie dollar was last down at 0.5 percent to $0.7041. Against the Japanese yen, the currency fell 0.7 percent to ¥78.67.

Concerns over Australia’s economy also left the New Zealand dollar with a 0.1 percent loss to $0.6781.

Prospect of a dovish stance from the RBA and the Bank of Canada (BoC) follows delays by other central banks in policy tightening this year in the face of a slowing global economy.

Currency strategist Adam Cole said the key domestic demand components were all weak and their economists suggest the door for rate cuts has opened further.

Ahead of the BoC’s meeting later in the day, the Canadian dollar remained in the red, reaching C$1.3380 to mark its lowest since January 7 as trade tensions, domestic political uncertainty, and expectations that the BoC is close to turning the direction of its policy around.

The Canadian dollar last stood at C$1.3382.

The BoC is seen keeping domestic borrowing costs unchanged, although some traders believed it might cut interest rates later this year.

The US dollar, meanwhile, hovered near a two-week high. The dollar index, which gauges the greenback’s strength against a basket of six major currencies, lost 0.03 percent to $96.768 after touching a two-week high of $97.008 on Tuesday.

The euro was little changed at $1.315 and not far from a two-week low against the US dollar as investors considers the likelihood of the European Central Bank (ECB) signaling a pause in rate hikes until 2020. The ECB is also expected to re-launch long-term bank loans soon to boost the economy.

Volatility in the currency market has stumbled in 2019 as the brief halt in central bank tightening and hopes for an end in the US-China trade dispute held price movements back.

Realized volatility in the euro/dollar pair was at or close to record lows with traders struggling to find direction, according to Global Macro Strategist Viraj Patel.

Patel stated that there is no thematic direction and in these sort of FX markets, the euro/dollar is looking for some sort of directional catalyst.

The British pound shed 0.1 percent to $1.3153 after posting a one-week low of $1.3097 the previous day due to profit taking and renewed concerns about next week’s votes on Brexit.

Discussions between UK Prime Minister Theresa May’s lawyer and negotiators of the European Union (EU) to achieve concessions from the bloc on Brexit ended on Tuesday without a deal, and no new plan is expected before the weekend.

Britain is due to leave the EU in 23 days and sterling investors are worried. The pound has plummeted this week as uncertainties pile up over how, or possibly even if, UK’s departure will happen.

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