Just two days after notching a two-month high, the Australian dollar is under fresh attack as bets rise for the central bank to cut interest rates at its November meeting.
A decision by Westpac, one of Australia's top four banks by market capitalization, to increase home loan and residential investment property rates by 20 basis points on Wednesday was interpreted by traders as a sign that the Reserve Bank of Australia (RBA) will be forced to lower benchmark interest rates from their current 2 percent trough.
Higher mortgage rates could deal a blow to Australian consumers, especially if other banks follow suit in the near-term, as residents use more of their paychecks on mortgages than spending ahead of the all-important Christmas season.
"The market has clearly taken today's news as paving the way for the RBA to potentially cut rates... The market reaction clearly points to the risk that other banks are expected to follow suit," said Prashant Newnaha, an interest rate strategist at TD Securities.
Goldman Sachs is subscribing to that view. "Following the preemptive interest rate hike by Westpac, we now see the November rate cut as highly likely and a strong case for a further rate cut in early 2016 can now be made," economists said in a report.
Wednesday's news saw the Australian dollar hit an intra-day low of $0.7195, retreating further from Monday's two-month high of $0.7382. For nearly two weeks, the currency has enjoyed a relentless rally, with Monday marking the currency's third longest consecutive gain since floating in 1983, according to spread better IG. But gains were abruptly halted on Tuesday following China's larger-than-expected fall in September imports, which bodes ill for Australian exports.
To be sure, not everyone expects a rate cut as early as November.
"The RBA is not going knee-jerk react to today's news. Their modus operandi has been one of reactivity, not proactivity and so even if other banks follow with similar moves, I don't think the RBA will be in any state of mind to preempt that. Should it happen, they will react but it's nothing urgent in the near-term," Sally Auld, JP Morgan's head of fixed income and FX strategy, told CNBC.