The Australian dollar slipped under 65 US cents today after fresh domestic data confirmed the economy is facing a sharp slowdown, setting the scene for an aggressive interest rate cut tomorrow.
Private sector surveys showed manufacturing activity deteriorated and price pressures eased in November, while government data showed company profits slowed and business sales were soft in the third quarter.
In late trade, the dollar was at $US0.6478, down from $US0.6562 late here on Friday. It had posted modest gains last week as firmer stock markets tempted investors back into riskier currencies offering higher yields.
The Reserve Bank of Australia's (RBA) monetary policy board meets on Tuesday and bill futures are fully pricing a 100 basis points cut in the 5.25% cash rate.
Analysts are more cautious, favouring a 75 basis point easing, since the central bank has already slashed the cash rate by 200 basis points since September.
"We expect the RBA to cut the cash rate by 0.75%, rather than 1.0% expected by the market, though the risks are for a large cut,'' said Joseph Capurso, currency strategist at Commonwealth Bank.
"We see downside risks for the Aussie this week as we expect confirmation that growth was weak in the September quarter. Also, gains on equity markets are likely to peter out because they are not based on improvements in the economic outlook.''
The Aussie slipped against the yen, easing to 61.72 yen from 62.52 yen with expectations that further rate cuts by the RBA would reduce the Aussie's high-yield allure weighing down on the local currency.
In contrast, the Australian currency hit a two-month high on the New Zealand dollar at $NZ1.1971, boosted by expectations the central bank there will cut rates even more aggressively to support an economy already in recession.
The Reserve Bank of New Zealand (RBNZ) along with the European Central Bank and Bank of England are all expected to cut rates this week. Financial markets are pricing in a cut close to 150 basis points to 5% by the RBNZ.
Tuesday's domestic data includes the current account deficit for the third quarter and retail sales for October, with the latter to give an early indication for fourth-quarter activity.
Australian bond futures rose, reversing earlier losses, as uncertainty about the economic outlook underpinned their safe-haven allure with rate cut expectations adding to their strength.
Three-year Australian bond futures were 0.04 points higher at 96.445, while the 10-year contract rose 0.055 points to 95.47.
