The Australian and New Zealand dollars languished at two-year lows on Tuesday as sliding share markets again led risk assets lower, and resource prices came under pressure on the prospect of less demand from China as more COVID-19 curbs are imposed.
The Aussie was left reeling at $0.6731, having shed 1.7% overnight after a break of support at $0.6750 triggered a wave of stop-loss sales. It found some support at a trough of $0.6716 but risks extending the decline to at least $0.6680 and $0.6460.
The kiwi was wallowing at $0.6115, after losing 1.1% overnight to as low as $0.6098.
Support now lies down at $0.6000 and $0.5920. Expectations the Reserve Bank of New Zealand (RBNZ) will hike interest rates by another 50 basis points rate at its policy meeting on Wednesday has done little to lift the kiwi, which is down 2% for the month.
Both were caught by a broad rise in the US dollar, as upbeat US jobs data have cemented the case for another 75 bps increase in the Federal Reserve policy interest rate this month. Analysts at Westpac said the jobs report “emphasised that the Fed has a lot more work to do” on rates.
Australia, NZ dollars roiled by resource rout, rate peaks reconsidered
China’s coronavirus curbs have also caused fresh pain for key Australian commodity exports with iron ore sliding to its lowest for the year so far. “Commodities are clearly signalling that the global growth outlook is deteriorating markedly as central banks raise rates super aggressively,” said Westpac’s analysts.
Australian consumer sentiment and business confidence data released on Tuesday suggested recent rate hikes were already working to cool the economy.
Gareth Spence, a senior economist at NAB, said the Reserve Bank of Australia (RBA) seemed keen to front-load its tightening to stop high inflation getting baked into expectations.
“We now see the cash rate target at 2.35% by November, was 2.1%, and peaking at 2.6% in February, previously mid 2023,” he said.
The RBA lifted rates by 50 basis points last week to 1.35% and markets are priced for a further move to 1.85% in August.
He sees rates peaking at 2.6% in February, which should be enough to curb inflation given how indebted Australian households are.
“The rapid increase in rates and higher prices faced by households will begin to moderate consumer demand and we now see below-trend GDP growth of 1.8% in 2023 and 2024,” said Spence.
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