Australia, NZ dollars feeling global blues after bruising month

SYDNEY: The Australian and New Zealand dollars were nursing bruising monthly losses on Friday as global growth concerns plagued commodity currencies, while the US dollar benefited from a hyper-hawkish rate outlook.

The Aussie did manage a minor bounce to $0.7120, after finding support at a three-month low of $0.7055 overnight. Yet it was still down 4.7% on the month and not far from its 2022 trough of $0.6968.

The kiwi dollar was lying at $0.6497, having hit its lowest since mid-2020 at $0.6454 overnight. That brought its losses for the month to 6.2%, the biggest drop since May 2015.

Fears of recession in Europe and a slowdown in China amid coronavirus lockdowns has weighed heavily on the commodity-heavy currencies, which are very sensitive to the global outlook.

A sharp fall in the Chinese yuan has added to the pressure as the Aussie is often sold as a liquid proxy for the Asian currency.

Even the prospect of a rise in Australian interest rates next week has done little to support demand, with the US Federal Reserve expected to tighten far more aggressively.

Investors are wagering on around 150 basis points of US hikes by the end of July, compared to about 90 basis points from the Reserve Bank of Australia (RBA).

The market is now fully priced for RBA rates to rise to 0.25% at its May 3 policy meeting, having brought it forward from June following shockingly high inflation data.

Of the major Australian banks, only CBA thinks it will keep rates at 0.1% next week and concedes that is a close call. If they prove right, it would not be good news for the Aussie.

“Of the three occasions when the RBA left the cash rate unchanged in contrast to market expectations for a hike, AUD/USD decreased by an average of 0.7% thirty minutes after the decision,” noted CBA economist Joseph Capurso.

When a hike was delivered as expected, much depended on what the RBA statement flagged for the future.

Since rates of 0.1% are now so far below inflation at 5.1%, analysts assume the central bank will signal it has some work to do on tightening and any mention of moving toward neutral - which is seen around 2.5% - would be very hawkish.

The RBA is also expected to announce it will let its bond holdings run off as they mature, and not sell down actively as the Fed is doing.