Aussie dollar slips in narrow trade

The local unit remains caught between commodity price gains and interest rate bets.

The Australian dollar continued to trade in a narrow range in late afternoon, caught between recent gains in commodity prices and growing bets interest rates will be cut again in coming weeks.

Interest rate swap markets are pricing a 35 per cent probability that the Reserve Bank of Australia will cut interest rates in June, adding to the surprise cut announced at the start of May.

A 25-basis-point rate cut in June would take the cash rate to a record low 1.50 per cent from 1.75 per cent currently.

At 6.32pm (AEST), the Australian dollar was trading at US73.41 cents, down from US73.76 at the same time Wednesday.

Some forecasters are predicting even more aggressive rate cuts.

Sally Auld, chief economist at JP Morgan, Australia, said Thursday she now expects a 1.0 per cent cash rate before the middle of 2017. JPMorgan had previously been one of those forecasters saying the period of interest rate cuts was probably over.

Ms Auld describes the current inflation outlook in Australia as “worrisome,” adding that it can’t simply be explained by falling commodity prices, nor the fact that wages growth has been flat for four years.

Still, solid commodity prices, especially oil, were providing the Australian dollar with some support, traders said.

Oil prices turn positive overnight on unexpectedly bullish data showing US crude inventories posted a surprise draw of 3.4 million barrels, and stockpiles of gasoline and distillates fell too.

Dow Jones newswires