SYDNEY: The Australian and New Zealand dollars remained vulnerable to further losses on Wednesday as hawkish US central bank speak forced traders to temper their rate cuts optimism, while long-end bond yields jumped to one-month highs.
Markets are now waiting for the release of China’s economic data due later in the day, although Premier Li Qiang spoiled the surprise on Tuesday by revealing the economy expanded at 5.2% last year, above the government’s target of about 5%.
The Aussie was nursing heavy losses at $0.6588, having plunged almost 1.2% overnight to test its 200-day moving average of $0.6582, which proved to be support for now.
The next level of support lies around $0.6540.
The kiwi dollar was feeling unloved at $0.6141, after a tumble of 1% overnight to as low as $0.6125. It has support at 61 cents and faces resistance at $0.6180.
National Australia Bank on Wednesday abandoned its call for a rate hike from the Reserve Bank of Australia in February.
All of the big four Australian banks now expect local interest rates have peaked, in line with market pricing.
“The RBA is then expected to remain on hold until November, before gradually cutting rates by 125bps by the end of 2025 taking the cash rate to 3.1% by end 2025,” NAB Group Chief Economist Alan Oster said.
In the US, influential Federal Reserve Governor Christopher Waller said on Tuesday the central bank should proceed “methodically and carefully” with rate cuts and not make large, fast reductions given the strength of the economy.
Australia, NZ dollars hit one-month lows as support breaks
Markets scaled back the probability of a March rate cut to 64% from about 80% a day earlier, the CME FedTool showed, and total easing cuts priced in for 2024 fell about 10 bps to about 150 bps.
Traders are now on guard for a speech by European Central Bank President Christine Lagarde later in the day after several ECB officials already pushed back against the market’s sanguine view on the degree of policy easing this year.
Benjamin Schroeder, senior rates strategist at ING, believes markets are still too optimistic about the chance of a March rate cut from the Fed.
“We fully expect it to flip to a 65% discount for no March cut in due course,” Schroeder said. Bonds were also sold off, taking a cue from Waller.
Ten-year bond futures now imply a yield of 4.24%, the highest level since mid-December, while three-year bond futures fell 5 ticks to 96.23.
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