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Australia dollar weakens, bonds rally on rate-cut bets; NZ$ softens

SYDNEY, Sept 23 (Reuters) - The Australian dollar hit a six-week low on Wednesday amid growing expectations for further monetary policy easing as soon as next month, while its New Zealand peer weakened as well after the country’s central bank left the door open for more cuts.

The Australian dollar was last down 0.6% at $0.7127, a level last seen around mid-August.

The decline came after a speech by Deputy Governor of the Reserve Bank of Australia (RBA) Guy Debelle on Tuesday where he signalled the prospect for further policy easing.

Losses in the Aussie further accelerated on Wednesday when Westpac economist Bill Evans revised his call to forecast a 15 basis point (bps) cut to the cash rate and the three-year bond yield target to 10 bps at the RBA’s Oct. 6 board meeting.

Other analysts including National Australia Bank and Singapore’s TD Securities are also predicting monetary easing measures in the next month or two.

RBA’s Debelle “gave a fairly clear hint that the Board is set to cut the cash rate and other key policy rates at its October Board meeting,” Westpac’s Evans said.

Evans also expects the RBA to extend bond purchases in the five- to 10-year maturity range, from three-year now.

Bonds rallied on Wednesday, with three-year yields slipping to 0.18% from 0.235% on Tuesday.

Yields on the 10-year paper were down to 0.86% from 0.9%.

Across the Tasman Sea, the New Zealand dollar was off 0.4% at $0.6607, a level last seen in late August.

Earlier, New Zealand’s central bank held its official cash rate at a record low and hinted at further easing while warning the economy may need support for a long time as the world grapples with the coronavirus pandemic.

The RBNZ also retained its large scale asset purchase (LSAP) programme at NZ$100 billion ($66.2 billion).

It added that further stimulus may be needed and that it was prepared to use additional tools like a cheap funding facility for banks, negative rates, and purchases of foreign assets.

New Zealand government bonds gained with yields about 4-5 basis points lower at the long-end of the curve.

Australian government bond futures rallied, with the three-year bond contract up 4.5 ticks at 99.780. The 10-year contract rose 3.5 ticks to 99.155. (Editing by Sherry Jacob-Phillips)

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