Australian dollar falls as talk of November rate cut grows

The Aussie dollar weakened amid growing expectations the RBA will cut interest rates next month.

The Australian dollar has weakened amid growing expectations the Reserve Bank will lower interest rates in November.

The selling emerged after Westpac announced it will increase interest rates on some of its mortgage products next month, a move other major banks are expected to follow.

Higher mortgage rates effectively tighten monetary conditions across the economy, something the Reserve Bank will want to counter by cutting its official cash rate, some economist said.

Westpac said its decision was due to rising costs associated with demands by regulators for banks to hold higher levels of prudential capital.

Goldman Sachs economist Tim Toohey said an interest-rate cut in November has now become highly likely, with a further cut likely to be needed in the first quarter of next year.

Market pricing implies a 30 per cent chance of a rate cut in November, up from 22 per cent yesterday, while expectations of a cut before the end of the year now exceed 50 per cent, up from 40 per cent yesterday.

The Australian dollar was about half a US cent weaker after Westpac announced its decision.

At 4.10pm (AEDT), the Australian dollar was trading at US72.21 cents, down from US73.20 late yesterday.

The RBA cash-rate target has remained at a record-low 2 per cent since May.

Tomorrow will bring September employment data, with economists surveyed by the Wall Street Journal expecting a modest rise in jobs of 10,500 for the month, not enough to lower the unemployment rates which in August sat at 6.2 per cent.

Some economists warn that recent government moves to tighten eligibility for social welfare payments had forced people into the job market, with the net effect of the changes a possible rise in the unemployment rate.

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