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More woe for Aussie dollar as market bets swell on RBA rate cut

Thursday,   16-May-2019   03:36 PM (IST)

The Australian dollar hit a fresh five-month low on Thursday as investors came close to fully pricing in a rate cut for July on bruising domestic economic data and a swelling trade conflict between the United States and China. In Europe, the Swedish crown led losses while optimism on the euro proved short-lived with trade tensions and upcoming European elections weighing on sentiment. But it was the Aussie dollar that was firmly in focus after Australian unemployment rose to its highest in eight months, cementing views its central bank may be forced to lower rates soon to stimulate the economy. The currency was down a quarter of a percent at $0.6933 in early European trade, having hit a new five-month low of $0.6893 in the Asian session. Money markets are wagering a rate cut might come very soon, with futures now showing a 50-50 chance for a quarter-point  easing in June. A move to 1.25% was put at a 90% probability for July and was more than fully priced by August. Australians have a choice between tax cuts and greater public spending when they vote in a general election on Saturday, the starkest distinction in economic policy in years from the two main political parties. Australia’s 10-year bond yield hit an all-time low of 1.639 percent. The currency has also been hit in recent weeks by Sino-U.S. trade tensions - given Australia’s strong trade links with China - and news on that front was alarming on Thursday after Chinese telecoms giant Huawei was hit with severe sanctions by the world’s largest economy. These trade tensions also hit European currencies, with the Swedish crown weakening 0.2 percent at 9.6145 per dollar, not far from an all-time low of 9.661 per dollar hit a week ago. The euro meanwhile was flat to a touch higher on the day at $1.12045, following some gains the previous session after U.S. officials said President Donald Trump was expected to delay implementing tariffs on imported cars and parts by up to six months. The loss of momentum in the single currency is likely down to worries around an upcoming European parliamentary election, in which anti-establishment parties may make significant gains. Italian Deputy Prime Minister Matteo Salvini said on Wednesday European Union budget regulations are “starving the continent” and must be changed, a day after he roiled financial markets by saying Italy should be ready to break the rules.