SYDNEY (Reuters) – The Australian dollar held near three-month lows on Friday after weak U.S. data fueled fears of a sharp slowdown in the world’s largest economy, prompting investors to seek refuge in the safe-haven yen and Swiss franc.
The single currency was steady at $0.6501, having fallen 0.5% overnight to just above a three-month low of $0.6480 hit on Wednesday. Further support is at $0.6466, with resistance at $0.6580.
Over the week, the yen fell 0.6%, its third straight week of declines, due in part to a decline in the popular carry trade where investors borrow low-yielding yen to invest in higher-yielding currencies.
Against the yen, the Australian dollar hit a six-month low of 96.59 yen on Friday, taking its weekly decline to 3.4 percent. It also hit a six-month low against the Swiss franc, at 0.5654 francs.
The New Zealand dollar was more fortunate, settling at $0.5943, after ending Thursday little changed.
During the week, the Australian dollar rose by 1.0%, largely due to gains against the Australian dollar as markets swung to price in any chance of a rate hike by the Reserve Bank of Australia after positive inflation data.
However, it hit a 2023 low against the Japanese currency at 88.33 yen.
Data overnight showed U.S. manufacturing activity contracted at the fastest pace in eight months in July, while a gauge of employment fell sharply, suggesting risks to Friday’s key jobs report are on the downside.
That has hurt Wall Street and boosted bonds, prompting traders to bet there’s a 30% chance the Federal Reserve will cut interest rates by 50 basis points in September as the economy slows. More than three cuts have been priced in for the whole of 2024.
“With the market moving strongly towards a mantra that bad news is bad news for risk assets and sentiment, with swaps pricing in an element of further emergency cuts, weak US jobs numbers will not be digested well at all,” said Chris Weston, head of research at Pepperstone.
The shift has been echoed in Australia, where investors are pricing in a 90% chance of a cut to the current 4.35% cash rate in December. Swaps imply a total easing of 80 basis points by the end of 2025, more than doubling in a week.
However, bonds had a good week on the back of the prospect of an early rate cut. Three-year futures rose 7 basis points to 96.37, the highest since early April. That brought their weekly gain to 31 basis points, the biggest gain since July 2023.
The 10-year note rose about 6 points to a four-month high of 95.97, with a weekly gain of 28 points.