Australian Dollar Slides Lower Amid Growing Troubles

 
   By James Glynn 
 

        SYDNEY--A sea of troubles have emerged to weaken the Australia dollar, among them growing expectations the central bank will cut interest rates next week.
        The Aussie has fallen by close to 4% since Friday as financial markets have revved up bets that the Reserve Bank of Australia will lower its cash rate to 2.00% next week from 2.25% now.
        The shift in the market has also brought with it forecasts that the RBA might need to cut interest rates perhaps another two times in the next year to support a sluggish economy, and help reverse a tide of rising unemployment.
        RBA officials continue to stress that the Australian dollar is too high. In December, Governor Glenn Stevens said he'd like to see the Aussie trading at close to US$0.7500. That goal is likely lower now as commodity prices continue to drop.
        At 0510 GMT, the Australian dollar was trading at US$0.7631 , down from US$0.7710 late Monday.
        Barclays Australia chief economist Kieran Davies Tuesday pulled forward his expectation for the next cut in interest rates by the RBA to April, from May.
        "We narrowly favor a 25 basis point cut, to 2%, on April 7, given the RBA is indirectly signalling it may act sooner than it previously thought," he said.
        Recent reports, including by The Wall Street Journal on Friday, have pointed to the increased potential for an April cut, as the central bank sees little reason to delay a further easing it knows the economy needs.
        The RBA cut in February surprised markets. It downgraded its growth forecasts and said inflation risks were slight.
        The RBA's shift appears prompted by further weakness in commodity prices this month, Davies said. Its commodity price index has fallen 6% in U.S. dollar terms over March to the lowest level since 2007, led by a 16% decline in the iron ore price.
        The price for iron ore, the country's biggest export, has fallen this week to US$52.9 per metric ton, a far cry from peaks around US$185 per ton at the height of a commodity price boom over the last decade.
        Sean Callow, currency strategist at Westpac, said that with iron ore and the interest rate outlook weighing, the Aussie dollar should remain a sell on rallies into the next RBA policy meeting on April 7 and "probably beyond."
        Write to James Glynn at james.glynn@wsj.com
        (END) Dow Jones Newswires

        March 31, 2015 01:30 ET (05:30 GMT)

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