SYDNEY: The Australian and New Zealand dollars were deep under water on Monday as a selloff on Wall Street undermined risk appetites and completely overshadowed the prospect of higher interest rates at home.
The Aussie was ailing at a three-month low of $0.7046 , having broken support at $0.7050. It shed 5.7% last month as fears of a recession in Europe and lockdowns in China undermined risk assets. The kiwi dollar was pinned at its lowest since mid-2020 at $0.6448, having lost 6.9% in April.
It now risks a further decline to support around $0.6200.
The Aussie has so far gained scant assistance from expectations the Reserve Bank of Australia (RBA) will soon hike interest rates from record lows of 0.1%. Markets are wagering heavily for a move to 0.25% at the RBA’s May policy meeting on Tuesday, and then for a hike every month to around 2.5% by Christmas.
Yet markets are even more hawkish on the US Federal Reserve with 150 basis points of hikes priced in by the end of July and rates at 3% or more by year end.
“We expect the RBA to raise the cash rate target by 15 basis points to 25 basis points and signal further rate rises are likely to be appropriate in coming meetings,” said Taylor Nugent, an economist at NAB.
“The inflationary environment is at odds with a policy to continue to keep the foot firmly on the accelerator while it waits for a lagging labour cost story to fall into place, especially in the context of low and falling unemployment.”
Analysts expect the jobless rate will soon fall under 4% for the first time since the early 1970s given the strength of vacancies and job ads.
The RBA is also expected to announce it will be running off its bond holdings as they mature over the next two to three years, and not actively sell the debt ahead of time.
If it does move on Tuesday, RBA Governor Philip Lowe is likely to call a media conference after the meeting. Should it skip a hike this time in preference for June, the Aussie is likely to break $0.7050 and threaten its January trough around $0.6968.