* Weak Australian dollar backs rate cut expectations
* U.S. dollar holds near two-week peak after data
* Euro pauses near $1.13 ahead of ECB meeting
* Sterling weaker as Brexit deal doubts return
* Graphic: World FX rates in 2019 (Adds details)
By Tommy Wilkes
LONDON, March 6 (Reuters) – Australia’s dollar fell to a
two-month low on Wednesday as signs of an economic slowdown
supported bets on an interest rate cut later this year, while
the Canadian dollar dropped again before the central bank’s
Expectations for the Reserve Bank of Australia and the Bank
of Canada to tilt towards a more dovish stance follow pauses by
other central banks in policy tightening in 2019 in the face of
waning economic momentum.
The Australian and Canadian dollars were the big movers in
otherwise quiet FX markets, with the U.S. dollar holding near a
two-week high after Tuesday’s strong service industries and new
home sales data. The euro paused before Thursday’s European
Central Bank meeting.
The Aussie dollar slid 0.8 percent to as low as $0.7024 after data showed economic growth was 0.2 percent in
the fourth quarter, below an expected 0.3 percent. That left the Aussie at its lowest since Jan. 4.
Against the yen, the Aussie also fell , while the
New Zealand dollar weakened as worries about the
Australian economy spread.
"The key domestic demand components were all weak and our
economists suggest the door for rate cuts has opened further,"
said Adam Cole, currency strategist at RBC Capital Markets.
The Canadian dollar extended its losses in European
trade to touch C$1.3380, its lowest since Jan. 7, hurt by trade
troubles, domestic political uncertainty and bets the Bank of
Canada could be close to changing its policy direction.
The BoC holds its policy meeting on Wednesday, with a
decision due at 1500 GMT. The dollar index rose marginally to 96.907 after
hitting a two-week high of 97.008 on Tuesday.
The euro slipped slightly to $1.1305, hovering near
two-week lows versus the greenback as investors prepare for the
possibility that the ECB will signal a delay in raising rates
until 2020. The ECB is also expected to re-launch long-term bank
loans soon to revive the economy.
Currency market volatility has slumped in 2019 as a pause in
central bank tightening and hopes for a resolution in the
U.S.-China trade conflict suppress price movements. Deutsche
Bank’s Currency Volatility Index is approaching record lows. Viraj Patel, global macro strategist at investment advisory
firm Arkera, said realised volatility in euro/dollar was at or
near record lows with traders struggling to find direction.
"You have no real thematic direction. In these sort of FX
markets, euro/dollar is looking for some sort of directional
catalyst," he said.
Sterling fell towards one-week lows on profit
taking and renewed worries about next week’s parliamentary votes
on Brexit. The Japanese yen stood little changed at 111.87 yen per
(Editing by Emelia Sithole-Matarise and Mark Potter)