SYDNEY: The Australian and New Zealand dollars basked in the glow of robust overnight gains on Wednesday, as the US and China de-escalated tariff tensions, brightening the outlook for the global economy and sparking a rebound in commodity prices.
A pullback in the US dollar also worked in their favour.
The Aussie inched up 0.1% to $0.6480, after jumping 1.6% overnight to move back above its 200-day moving average of $0.6454.
That put it within a whisker of a five-month top of $0.6514 hit last week.
The kiwi was also 0.1% higher at $0.5942, having rallied 1.3% overnight to be also back above its 200-day moving average of $0.5882.
It is, however, still some distance away from a six-month peak of $0.6029.
The outlook for the global economy has improved after the US and China agreed on Monday to temporarily slash their sky-high tariffs on each other, greatly lessening the risk of a recession and adding to the case for the Federal Reserve to hold on interest rate cuts for longer.
Futures continued to scale back expectations for US policy easing, with just two quarter-point rate cuts priced in this year. Commodity prices bounced, with iron ore hitting the highest in over two weeks and copper climbing to six-week highs.
Australia, New Zealand dollars gain on crosses as US, China reach tariff truce
“US recession risks have eased but we expect stagflation will still only let the Federal Reserve make one 25bps rate cut in 2025,” said Mansoor Mohi-uddin, chief economist at Bank of Singapore.
“The USD has rallied sharply… But the greenback’s long-term outlook remains bearish as global investors turn cautious after the Trump administration’s economic, foreign policy and trade shocks.”
Data showed Australian wages rose at a faster-than-expected clip of 0.9% in the first quarter, although the gain was driven by government pay rises for care workers, suggesting the labour market should not be a bar to more policy easing.
Swaps have fully priced in a rate cut from the Reserve Bank of Australia next week, and a total easing of 80 basis points has been priced in by the end of the year.
“Much of the strength in wages in Q1 has been driven by policy changes and will be temporary,” said Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia.
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