SYDNEY: The Australian and New Zealand dollars were left reeling on Friday, having suffered stunning reversals overnight when global markets took a nosedive and funds swept back into the arms of the US dollar.
A crestfallen Aussie found itself back at $0.7110, after a 2% dive overnight erased all of Wednesday’s hefty gains.
Both the fall and the previous rally were among the biggest daily moves in years, testifying to the extreme volatility. The retreat left its 200-day moving average intact at $0.7284 and puts the recent three-month low of $0.7030 at risk.
Australia, NZ dollars cheer upbeat data, bonds dive
The kiwi also slid 2%, hitting a two-year trough of $0.6395 and wiping out all of the week’s gains. It was last at $0.6422, not far from major support at $0.6375.
Wall Street’s sudden swoon appeared to have no obvious reason, spurring talk of possible forced liquidation by funds in distress.
A pop higher in Treasury yields also underpinned the US dollar as markets wagered the Federal Reserve would have to hike even more aggressively to tame inflation.
A deeply gloomy outlook from the Bank of England also added to worries about a global recession as the conflict in Ukraine drags on and China lockdowns persist.
“The now high probability China’s zero-covid strategy will persist and that the EU is set to impose an embargo on Russian oil imports, are shifts in the global macro landscape necessitating downward revisions to AUD, NZD and EUR,” said Ray Attrill, head of FX strategy at NAB.
“We now see AUD/USD tracking largely inside a $0.70 to $0.75 range through year-end, but with a high risk of forays below $0.70 to as low as $0.67.” The prospect of more rate rises at home offered little support with the Reserve Bank of Australia (RBA) seen far behind the Fed on tightening.
The RBA on Friday sharply raised its forecasts for core inflation, with no return to its 2-3% target band envisaged until 2024 even assuming a series of rate rises. Markets are priced for another quarter-point hike to 0.6% in June and a hike each month to near 3% by year end.
That would be one of the most aggressive tightening cycles on record and a major shock to the domestic economy.
The hawkish outlook saw three-year bond futures sink 33 ticks for the week to 96.815 and reach lows not seen since mid-2012.
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