SYDNEY: The Australian and New Zealand dollars were still smarting from recent losses on Wednesday amid worries about Chinese demand for commodities and expectations the US Federal Reserve will flag an aggressive tightening cycle later in the day.
The Aussie was precariously perched at $0.7190, after finding some support under $0.7170.
That was a long way from last week’s four-month top of $0.7440 and the technical risk remained for a retracement to $0.7090.
The kiwi dollar was idling at $0.6767, having been as low as $0.6729 overnight before finding support. A break above $0.6790/6800 is needed to improve the chart background.
Oil prices extended their decline to $100 a barrel, in part on speculation a deal on Iran might go forward, while concerns about more coronavirus lockdowns in China hit iron ore.
“Both the iron ore and the oil price have corrected back down to near their pre-war levels,” noted CBA FX analyst Joseph Capurso. “And AUD/USD is still at risk of a sudden material drop to test $0.7000 if the situation in Ukraine deteriorates.”
The next hurdle is the Fed’s policy meeting later Wednesday where a quarter point rate hike is fully expected, and markets are braced for hawkish forecasts of at least five hikes this year.
There was a also a good chance Fed members will lift estimates of the peak for rates, which could further undermine bonds globally and support the US dollar.
The only positive for the Aussie is that so much is already priced in it will be hard for the Fed to really shock markets.
Yields on Australian 10-year bonds have shot up 38 basis points in just seven sessions to reach 2.49%, and the highest since late 2018.
That has kept the spread over Treasuries relatively wide at 34 basis points, though it has done little to aid the Aussie recently.
Over in New Zealand, there was relief the government had brought forward by three months the date for allowing vaccinated Australian tourists to April 12, and visitors from visa-waiver countries to May 1.
The move should bring some much-needed tourist dollars into the country and help offset a widening current account deficit, which hit NZ$6.5 billion ($4.38 billion) in the December quarter.
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