Australian, NZ dollars weaken as oil rally dampens risk appetite
- The kiwi dollar also slipped 0.3% to $0.5796, its lowest point since late July, extending a 1.2% fall from last week
SYDNEY: The Australian and New Zealand dollars fell on Monday as soaring oil prices, supported by fresh supply disruptions in the Gulf, fuelled expectations of further global policy tightening and weighed on risk sentiment.
The Aussie, often seen as a proxy for risk appetite, weakened 0.3% to $0.7148 after losing 0.4% last week, retreating from a four-month high of $0.7238.
The currency had been supported by hawkish central bank rhetoric, with support seen at $0.7122 and $0.7067.
The kiwi dollar also slipped 0.3% to $0.5796, its lowest point since late July, extending a 1.2% fall from last week.
Major support is seen at $0.5762, while resistance lies around $0.5900.
Brent climbed 3% on Monday after fresh strikes on Saudi Arabia and ships in the Gulf tested nerves.
Asian stocks slid, with hotter-than-expected US inflation data helped lift expectations of a Federal Reserve rate hike this week, with markets pricing in an 84% chance of such a move.
“AUD/USD will continue to fall this week in our view, possibly testing weak support at 0.7076,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, adding that the greenback will receive a modest boost if the Fed hikes rates on Wednesday.
“In the event the Fed does not increase the Funds rate, we expect a steep 1%+ fall in the USD.”
The latest escalation in the Gulf is among the risks the Reserve Bank of Australia has flagged as potentially requiring further policy tightening after three rate hikes this year.
Markets are pricing in an 80% chance of an increase at the RBA’s September 28-29 policy meeting.
Governor Michele Bullock will appear before parliament on Friday, with investors watching for any signals that could pave the way for a rate hike later this month.
Across the Tasman sea, New Zealand will publish its second-quarter domestic gross product data on Wednesday.
Forecasts are centred on a small rise of 0.1% in quarterly GDP but annual growth picked up to 2.3% from 1.5%.
“The New Zealand economy has held its ground, better than we dared to hope in the early stages of the Middle East oil shock,” said analysts at Westpac.
“A stronger-than-expected GDP result could certainly assuage some of the (monetary) committee members’ concerns about downside risks to growth.”
Swaps are now implying a split chance that the Reserve Bank of New Zealand could hike interest rates for a third time this year in October, although the central bank itself has said further policy tightening would be gradual.
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