Australia, NZ dollars wallow at over two-year lows as risk aversion reigns

SYDNEY: The Australian and New Zealand dollars huddled near their lowest in over two years on Friday, as an aggressive US Federal Reserve, worries about global growth, and geopolitical concerns from Russia’s war in Ukraine bolstered the safe-haven dollar.

The Aussie was little changed at $0.6645 on Friday, after a volatile session that saw it plunging through a key level of 66 cents to $0.6574 for the first time since May 2020.

It was headed for a weekly loss of 1%. Risk-off sentiment prevailed after the Federal Reserve on Wednesday raised interest rates by three-quarters of a percentage point for a third straight time, with Chair Jerome Powell vowing policymakers would “keep at” their battle to beat inflation.

However, the Antipodean later found some relief and ended the session a tad higher, after the US dollar gave up some of the gains on the first currency intervention by Japanese monetary authorities since 1998 to boost the battered, rate-sensitive yen.

It lost 1% against the Japanese currency, hovering around 94.62 yen.

Australia, NZ dollars left far behind as others rush to hike

The kiwi dollar was hanging at $0.5852 on Friday, after hitting a pandemic low of $0.5806 in the previous session. It was set to skid 2.3% for the week.

Pessimism over the global economy, and particularly China, has combined with falling commodity prices to undermine both of the resource-rich currencies.

“Next up are the flash estimates of the September PMIs for many of the major economies. A further slowing in the PMIs can support the USD especially against the cyclical AUD and NZD,” said Kristina Clifton, an economist at the Commonwealth Bank of Australia.

After a spike in US benchmark yields to the highest since 2011, Australia’s 10-year government bond yield jumped 20 basis points to 3.912%, the highest since June this year. The three-year yield rose to 3.655%, up 25 basis points.

The yield premium of debt in Antipodean markets over Treasuries has narrowed in recent weeks to a meagre of 20.3 basis points as the Fed stays hawkish.