The Australian Dollar remained close to three-month lows on Friday, driven by weak US economic data that heightened concerns about a significant slowdown in the world's largest economy, prompting investors to seek refuge in the safe-haven Yen and Swiss Franc.
The Aussie remained steady at $0.6501 at the time of writing after dropping 0.5% overnight, staying just above the three-month low of $0.6480 reached on Wednesday. Additional support is found around $0.6466, while resistance is at $0.6580, Reuters news agency reports.
For the week, it has declined by 0.6%, marking the third consecutive week of losses. This drop is partly attributed to the unwinding of the popular carry trade, where investors borrowed the low-yielding Yen to invest in higher-yielding currencies.
Against the Yen, the Aussie reached a six-month low of 96.59 Yen on Friday, resulting in a substantial weekly loss of 3.4%. It also fell to a six-month low against the Swiss Franc, trading at 0.5654 Francs.
Elsewhere, the New Zealand Dollar fared better, holding at $0.5943 after ending Thursday with little change.
For the week, the kiwi is up 1.0%, primarily due to gains against the Aussie as markets adjusted to rule out the possibility of an interest rate hike from the Reserve Bank of Australia following favourable inflation data.
However, against the Japanese currency, it touched a 2023 low of 88.33 Yen.
Overnight, data revealed that US manufacturing activity contracted at the fastest rate in eight months in July, while a measure of employment declined sharply, suggesting the risks to the key payrolls report due on Friday are tilted to the downside.
This boosted bonds, leading traders to speculate that there is now a 30% chance the Fed might cut rates by 50 basis points in September as the economy slows. More than three rate cuts have been anticipated for this year.
“With the market firmly moving to a mantra that bad news is bad news for risky assets and sentiment, where swaps are pricing an element of more emergency cuts, poor US job numbers will not be digested well at all,” said Chris Weston, head of research at Pepperstone.
This shift has been mirrored in Australia, where investors are now pricing in a 90% probability that the current 4.35% cash rate could be cut in December. Additionally, swaps suggest a total easing of 80 basis points by the end of 2025, more than doubling in just one week.