Australia, NZ dollars catch a breather after plunge as bearish pressure builds

SYDNEY: The Australian and New Zealand dollars steadied slightly on Monday after steep falls late last week, but they remained under pressure from expectations of rising US interest rates, global recession and China doubling down on its zero-COVID strategy.

The Aussie bounced 0.4% to $0.6226, having plunged 1.5% on Friday to as low as $0.6203. That is only within a whisker of its recent 2-1/2 year low of $0.6170.

The kiwi dollar also edged up 0.4% at $0.5585, having dropped 1.4% to as far as $0.5553. Major support lies at its pandemic low of $0.5512 struck in March, 2020.

The US dollar made broad-based gains on Friday after stronger inflation expectations, coupled with the red-hot inflation data on Thursday, bolstered rate hike expectations from the Federal Reserve, with futures now pricing in the rates will now peak at 5% next year.

Joseph Capurso, a senior currency strategist at Commonwealth Bank of Australia, said the dollar index can track higher to 115 because of its safe-haven status amid the darkening global economic outlook.

It last stood at 113 on Monday. “AUD/USD could slip below 0.6000 for the first time since the early months of the pandemic,” said Capurso.

Global markets have been extremely volatile recently as investors worry rising interest rates could push major economies into recession before taming inflation, while concerns about financial stability are on the rise after Britain’s “mini-budget” triggered a meltdown in the local government bond market.

China’s doubling down on zero-COVID strategy at the opening of the all-important Communist Party Congress also means the world’s second-largest economy will not come to the rescue any time soon, which is particularly bad news for Australia and New Zealand as China is their biggest export market.

Australia, NZ dollars get reprieve as markets scent UK U-turn

Investors seemed to suspect the Fed’s likely aggression would pressure the Reserve Bank of Australia to follow and futures shifted to price in a peak for rates of 4.20%.

Yields on ten-year Australian government bond futures rose to the highest since late September at 4.091% on Monday, following a jump in overseas yields.