Australia, NZ dollars retreat as risk sentiment suffers

SYDNEY: The Australian and New Zealand dollars flinched on Thursday as global stock markets were sideswiped by a $200 billion rout in social media giant Meta, underlining the currencies' high correlation to risk sentiment.

The Aussie eased to find support at $0.7120, after reaching a one-week top of $0.7160 overnight. Resistance still lies around $0.7180, with more support at $0.7075.

The kiwi dollar faded to $0.6622, having briefly touched $0.6661 overnight. That was still well above the recent 16-month low of $0.6531, but short of a retracement target at $0.6710.

The resource-heavy currencies are seen as proxies for global growth and risk in general, and often track daily gyrations in US stock futures rather than domestic fundamentals.

Australia, NZ dollars gain

That was one reason the Aussie failed to get any lift from Wednesday's concession by the Reserve Bank of Australia (RBA) that interest rates could well rise this year, rather than in 2023.

RBA Governor Philip Lowe also hinted the bank could start running down its balance sheet as early as May even though an actual hike was not likely until later in the year. "We now expect the RBA to start Quantitative Tightening (QT) as soon as the 'review' at their May meeting," said UBS economist George Tharenou.

"We still expect the first hike to 0.25% in Q4, but the risk is rising for August," he added, noting Lowe had emphasised the bank was looking at a broader suite of wage indicators than just the official wage price index.

The index is only released quarterly and tends to move only slowly, while other more timely indicators were pointing to a faster pick up in labour costs.

For its part, the kiwi got some indirect support from ANZ's latest commodity price index which jumped 1.9% in local currency terms to a record high in January.

Prices for dairy, New Zealand's biggest goods export, climbed 2.5% to a record as strong demand met limited supply.

That should be a boon for export earnings and farmers' finances, though many are also struggling to produce more amid bad weather and rising costs.

Unfortunately for kiwi and Aussie bulls, the currencies' historic correlation to commodity prices has broken down in recent months and it is far from clear when it might revive.