Australian dollar stumbles as AI trade sputters, kiwi steadies after rate rout

SYDNEY: The Australian dollar stumbled on Friday as hefty cash burn by tech giants sparked a rout in equities and dented risk assets, while the New Zealand dollar steadied after being battered by a surprise decision of the central bank to keep rates unchanged.

The Aussie held at $0.7025, after falling 0.4% overnight and fading away from a five-week top of $0.7068.

Resistance is now around the 200-day moving average of $0.7058, with support at 70 cents. It also lost ground against its peers, falling 0.5% overnight on the kiwi to retreat from a 13-year peak of NZ$1.2601.

It also dropped 0.5% on the Japanese yen to 110.8 yen.

For the week, the Aussie was little changed, supported by growing expectations that the Reserve Bank of Australia will lift interest rates next Tuesday for a fifth time this year to 4.85%.

Hot inflation data and hawkish comments from policymakers have lifted the chances of a move to 80%, from just 25% a couple of weeks ago.

However, its status as a proxy for global risk leaves it vulnerable to further declines if the AI-driven rally in tech stocks continues to unravel.

Lachlan Dynan, a macro strategist at Deutsche Bank, argues the currency may prove more resilient than investors expect this time around.

“In the event of a broad-based loss of confidence in AI, it will likely be difficult for AUD to fully escape the traditional risk and commodity exposure and the AI domestic narrative, certainly on crosses,” said Dynan.

“But given the likely US-centric nature of the shock and related downward pressure, AUD/USD may be relatively flat, modestly lower or possibly modestly higher alongside a broadly weaker USD.”

The kiwi was steady at $0.5630, after eking out a 0.1% rise overnight. It was still set for a weekly loss of 1.2%, bringing it within striking distance of breaking major support at $0.5566.

The Reserve Bank of New Zealand shocked investors by holding rates at 2.75% on Wednesdsay when markets had fully priced in a quarter-point increase to 3.0%.

It signalled though that further increases were likely.

RBNZ’s assistant governor Karen Silk told Reuters that she would support a rate hike in December if current economic conditions persisted.

Markets now imply a 76% chance of a move in December and have rates peaking at 3.75% or higher. .