SYDNEY: The Australian and New Zealand dollars were trying to steady on Monday after suffering a setback when global recession risks dragged on commodity prices, though widening yield spreads offered some support.
The Aussie was a shade firmer at $0.6939, having lost 1.6% on Friday when an attempted rally ran into resistance in the $0.7050/69 area.
Major support now lies at last week’s one-month low of $0.6850.
The kiwi dollar was holding at $0.6315, after retreating 0.8% on Friday and away from resistance around $0.6396.
That put the focus back on last week’s two-year trough of $0.6197.
Concerns about demand in China have also seen prices for key Australian commodities fall sharply, with iron ore taking a beating last week.
Richard Franulovich, head of FX strategy at Westpac, noted copper was at an eight-month low, aluminium at its lowest since July last year and steel prices in China at 16-month lows.
“These are important signals that the global growth outlook is deteriorating markedly as central banks jack up rates aggressively and the Fed enacts record quantitative tightening, and this is important for commodity currencies,” he said.
“The A$ remains in a clear downtrend and the $0.6750 level looks like the next obvious target for the near term.” So far, rises in domestic interest rates have done little to boost either the Aussie or the kiwi, though yields spreads have widened markedly in their favour.
Yields on 10-year Australian government bonds surged a staggering 46 basis points last week to 4.04%, blowing out the premium over Treasuries to its widest since early 2014, at 90 basis points.
Reserve Bank of Australia (RBA) Governor Philip Lowe will speak on Tuesday and is likely to reiterate that more interest rate hikes will be needed, given inflation has outpaced all expectations and could well hit 7% by the end of the year.
The central bank will also release minutes of its June meeting, at which it decided to hike by a surprisingly large 50 basis points to 0.85%, and markets are wagering on a similar-sized move for July as well.
Australia, NZ dollars jump vs yen, bonds take a beating
Indeed, futures imply interest rates could near 3.75% by Christmas, which would require a string of outsized monthly increases.
The Reserve Bank of New Zealand (RBNZ) is seen doubling rates to 4% by year end, through four hikes of half a point each.
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