SYDNEY: The Australian and New Zealand dollars tumbled on Friday as Israel’s strike on Iran hammered global stocks and drove investors into safe-haven assets, with domestic bond yields diving to over a month lows.
The commodity-sensitive currencies often track global risk sentiment and tend to take a hit when equity markets slide.
The Aussie plunged 0.9% to $0.6474, having risen 0.5% overnight to as high as $0.6534.
It was already showing signs of fatigue as the currency has been unable to break a key resistance level of $0.6550 overnight even as the greenback slid due to another round of soft data.
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For the week, it is down 0.3%.
The kiwi dollar dropped 1% to $0.6011.
It gained gaining 0.7% overnight, hitting a high of $0.6071.
Support comes in around $0.5990, while resistance is at the multi-month top of $0.6080.
For the week, it is down 0.1%. Israel said early on Friday that it struck Iran.
Oil prices jumped over 6%, Wall Street futures dropped over 1%, while safe-haven currencies like the Japanese yen and Swiss franc rose.
Local bonds also rallied. Australia’s ten-year government bond yields slid 11 basis points to 4.133%, the lowest since May 1, while New Zealand’s ten-year government bond yields dived 8 bps to a six-week low of 4.529%.
Sean Callow, a senior analyst at ITC Markets, said the trend for the Aussie is still up given the pressure on the US dollar from a sluggish US economy and investor unease over the US policy outlook.
“Investors are likely to expect that Israel’s strikes will be contained to a relatively short period, not something that will dictate market direction multi-week,” he said.
Overnight, another round of weak US data - higher weekly jobless claims and soft producer prices - meant markets have now fully priced in a rate cut from the Federal Reserve by September.
That pushed the US dollar to its lowest since early 2022, although it did rebound a little on Friday.
Down Under, swaps imply around an 80% chance the Reserve Bank of Australia will cut rates by a quarter point to 3.60% at its next meeting on July 8, and move to 3.10% by year-end.
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