The Australian dollar slid to its lowest in a decade yesterday on speculation that the country's central bank will follow its New Zealand counterpart in delivering a bigger-than-expected interest rate cut.
Checks yesterday showed one Singapore dollar could buy 1.0757 AUD, up from 1.02 AUD in February when the Singapore dollar was strongest against the Aussie dollar.
The Australian dollar slumped by as much as 1.2 per cent to 66.77 US cents, breaching the low of 67.41 US cents during the January flash crash. The nation's three-year bond yield also tumbled by seven basis points to a record 0.631 per cent, widening its gap with the central bank's policy rate of 1 per cent.
Bets that the Reserve Bank of Australia (RBA) will ease policy jumped after New Zealand cut its benchmark by a deeper-than-expected 50 basis points, saying that it was trying to pre-empt the impact of slowing global growth.
With markets becoming jittery over the worsening trade dispute between the United States and China, and US President Donald Trump demanding further easing from the Federal Reserve, traders are starting to speculate about a cycle of competitive rate cuts.
"We're seeing insurance cuts from across the board now and I expect we'll definitely see more to come," said Mr Shaun Roache, chief Asia-Pacific economist at S&P Global Ratings in Singapore. "The external uncertainty from the trade war is driving considerations of easing by every central bank in the region."
New Zealand's dollar tumbled as much as 2.3 per cent to 63.78 US cents, while the nation's two-year bond yield fell as much as 20 basis points to a record 0.765 per cent.
Traders are now pricing in a 70 per cent chance that Australia's central bank will cut by 25 basis points at its meeting next month.
Australian policymakers are determined to revitalise price growth, RBA Governor Philip Lowe said last month. He also suggested that the government do more to support the slowing economy and spur the hiring needed to reduce unemployment and revive inflation.
US-China trade tensions have ratcheted up over the past week, with President Trump saying that he may slap 10 per cent tariffs on another US$300 billion (S$414.8 billion) of Chinese imports.
China retaliated by asking state-owned enterprises to suspend purchases of American agricultural products. The People's Bank of China's daily currency fix has become a major focus for currency traders after the yuan weakened beyond the key level of 7 per dollar.
Given the worsening outlook for global growth, the RBA and Reserve Bank of New Zealand (RBNZ) may have "appetite and propensity for more easing", said Mr Vishnu Varathan, head of economics and research at Mizuho Bank in Singapore.
Still, markets may be getting ahead of themselves in expecting the RBNZ to influence the RBA's next move, according to macro hedge fund Ensemble Capital.
The fund's chief investment officer Damien Loh, who is based here, said any cooling in trade tensions may see the RBA rely more on economic data to drive their next move.
"Markets have a tendency to try and front-run the central bank," he said. "Over the course of the month, I think the Aussie can remain roughly unchanged."
• Additional reporting by Aw Cheng Wei