Aussie Sinks After RBA Chief Hints at Possibility of Interest Rate Cut

RBA Rate Guidance Critical to AUDUSD Outlook

Aussie dollar tumbles; U.S. shutdown jitters dent stocks

Until yesterday, the RBA had been saying the next move in rates would most likely be up.

A man smokes next to the Reserve Bank of Australia headquarters in central Sydney, Australia February 6, 2018.

The Australian dollar tumbled on Wednesday after its central bank signaled a possible interest-rate cut, in the latest indication a global economic slowdown is tilting policymakers towards slowing rate hikes, while worries of another US government shutdown weighed on stocks.

German economic data disappointed once again and that saw EUR/USD slip from 1.1395 to a low of 1.1380 but the pair stuck around in a narrow range and now trades back around 1.1390-95 as traders continue to wait on further developments before breaking stride.

"It was certainly a very important statement from the Governor because he so clearly flagged a shift in the RBA bias", CMC markets chief market strategist Michael McCarthy told Xinhua.

The about-face pushed the Australian dollar down 1.53 percent against the us dollar, putting it on track for its biggest daily drop since November 2016.

The yen was 0.15 percent higher versus the greenback at 109.78. Japanese demand for foreign bonds has been another reason for the strength in dollar/yen.

The dollar index, tracking the unit against six major currencies, rose 0.2 percent, with the euro down 0.3 percent to $1.1378.

The official cash rate has been sitting at a record-low 1.5 per cent since August 2016.

Elsewhere, sterling was marginally higher at $US1.2930.

The United Kingdom is now on course to leave the European Union on March 29 without a deal unless British Prime Minister Theresa May can convince the bloc to reopen the divorce agreement she reached in November and then sell it to sceptical British lawmakers. "Today, the probabilities appear to be more evenly balanced".

A rhetoric shift by the Australian central bank Governor to a more cautious stance boosted hopes of an interest rate cut, weighing on the bond yields. It also added Chinese growth has continued to slow, which is a major risk for the Australian economy.

The Canadian dollar weakened by 0.18 percent versus the greenback to C$1.3238.

On Wednesday, Timothy Lane, deputy governor of the Bank of Canada, said uncertainty over USA trade policies is holding back Canadian business investment despite strong economic fundamentals, which has dampened sentiment towards the loonie over the last 24 hours.

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