The Australian dollar hit an 11-week low today after disappointing third-quarter growth data led investors to sell more of the currency that was already entrenched in a downtrend.
The Australian dollar slumped over half a cent to a low of 95.36 US cents after data showed the economy grew a meagre 0.2 per cent in the third quarter, short of forecasts for 0.5 per cent growth.
Although it crawled off lows by late trade to close locally at 95.95 US cents, helped in part by firm Chinese manufacturing data, it was still some 5 per cent under a 28-year high of $US1.0085 hit on November 5.
While most analysts said Australia's economy would soon re-accelerate as consumption and business investment pick up, some thought the soft data would at least affirm bets Australia would not get an interest rate hike before mid-2011.
"The risk is our first-half 2011 rate hikes are now more likely a second-half 2011 event, providing the economy (and profits) more time to strengthen," said Scott Haslem, an economist at UBS.
That it could be some time yet before a rate hike, gave investors more reason to sell riskier currencies for now, especially with the market on edge over Europe's debt problems.
Rate investors agreed there was little chance of a rate hike any time soon. Interbank futures implied no move to 5 per cent until November 2011, from 4.75 per cent now.
The cash yield curve also steepened yet further.
The spread between 10- and three-year yields widened to 37 basis points, leaving the curve at its steepest in 2-½ months.
Bond futures rallied to reflect the none-too-hawkish rate outlook. Three-year bond futures jumped 0.07 points to 95.03, and 10-year futures climbed 0.06 points to 94.625.
All that said, no one doubted that Australian rates would still head higher.
That led Westpac to predict the currency could scale new 28-year peaks of $US1.02 by June 2011.
"The Aussie dollar has been very resilient to the current bout of risk aversion, reflecting its outstanding relative fundamentals despite today's sell off," it said.
Reuters