SYDNEY: The Australian and New Zealand dollars were pinned near recent lows on Tuesday as global risk sentiment remained fragile and yield spreads moved further against them.
The Aussie was on defence at $0.6717, having been as low as $0.6673 overnight and just a whisker from the recent 2-1/2 year trough of $0.6670. Resistance lies around $0.6750 with the next major bear target down at $0.6460.
The kiwi had slipped to $0.5938, after touching a fresh 2-1/2 year low of $0.5929 overnight.
Support is at $0.5921, a low from May 2020. Pessimism over the global economy, and particularly China, has combined with falling commodity prices to undermine both of the resource-rich currencies.
Australia, NZ dollars on the ropes after another punishing week
Expectations the US Federal Reserve will hike rates by an outsized 75 basis points this week and keep lifting them above 4.0% has only added to the pressure.
While the Reserve Bank of Australia (RBA) has raised rates for five months in a row to 2.35%, markets are wagering it will stop short of 4.0% given wages are not growing nearly as fast as in the United States or Britain.
Minutes of the RBA’s September Board meeting out on Tuesday showed it debated whether to scale back to hikes of 25 basis points given that they were approaching more “normal” levels, but decided to stick with half a point.
“There is a recognition from the RBA that monetary policy works with a lag and it will take time for the activity and inflation data to reflect the already delivered rate hikes,” said Gareth Aird, head of Australian economics at CBA. “Our central scenario sees the RBA raise the cash rate by 25bp, although we acknowledge the risk sits with a 50bp hike.” Others thought the RBA was not yet ready to slow down.
“Given the strong inflation pressures still evident in the backdrop and resilient current spending data, NAB’s view is that the RBA is likely to do one more 50bps increase in October before downshifting to 25bp hikes,” said Taylor Nugent, a markets economist at NAB.
“Knowledge that a 25bps increase was considered but over-ruled in September, makes us slightly less confident of this call.” Just the chance the RBA could slow its hikes saw Australian 10-year bond yields dip to 3.66% and shrink the premium over Treasuries to just 18 basis points.
Less than a month ago it was at 60 basis points.
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