AUD vulnerable to further weakness as market re-prices RBA easing

From the FXWW Chatroom – Overnight, Australia’s second largest lender raised its home-loan rates by 20bp, which reflects the first increase in mortgage rates for owner occupiers in five years. The market has interpreted this as increasing the chance of Reserve Bank of Australia (RBA) easing, as the housing market slows, with the 2y swap rate falling by 7bp. A rate cut is now fully priced in for February next year. If Thursday’s employment report surprises to the downside we see scope for easing expectations to get priced in even sooner and for the AUD to weaken further. CAD could also be vulnerable to domestic economic weakness with September jobs potentially refocusing FX traders on the possibility of further domestic monetary easing, which remains under-priced by the rates market, in our view. 

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