Australia, NZ dollars struggle on new US banking fears, lower commodity prices

SYDNEY: The Australian and New Zealand dollars slid on Thursday, undermined by lower commodity prices and renewed US banking fears, while local bonds joined a global rally after the Federal Reserve signalled a pause in its tightening cycle.

The Aussie eased 0.2% to $0.6656, after making a modest 0.1% gain overnight against a weaker US dollar.

It has major support at $0.6573 and faces resistance at the 200-day moving average of $0.6730.

The kiwi also skidded 0.2% to $0.6220, having gained 0.4% overnight, supported by strong jobs data on Wednesday that added to the case for another interest rate hike from the Reserve Bank of New Zealand.

The Antipodeans also tumbled against the safe-haven yen.

The Aussie retreated 0.5% to 89.41 yen, after plunging 1.2% overnight, while the kiwi fell 0.4% to 83.59 yen, on top of a 1% drop a day ago.

Overnight, the Fed raised its interest rates by a quarter of a percentage point as widely expected, and opened the door to pausing in the tightening cycle by removing the reference that it “anticipates” that further hikes would be needed.

Risk assets initially rose but soon gave away to rekindled fears about the health of the US banking sector.

PacWest Bancorp shares crashed over 50% in after-hours trade on a report the US regional lender is considering a sale.

Just last weekend, First Republic Bank, which had been swept up in the bank run, failed and was sold to JPMorgan.

First Republic is the third US bank to collapse since March.

NZ dollar hauled higher by strong jobs data; Aussie lags

“There is no solution to the accelerating banking crisis other than Janet Yellen cancelling the latest policy on depositor safeguards.

This is unlikely,“ said Clifford Bennett, chief economist at ACY Securities.

“The banking crisis can only be expected to deteriorate further.”

Fed funds futures have wagered on a pause from the Fed next month, while pricing in a 70% chance of a cut by September, even though chair Jerome Powell pushed against such pricing in his post-meeting press conference.

Australian bonds gained, joining a global rally after Fed signalled a pause.

Three-year yields eased 10 basis points to 3.041%, while ten-year yields slid 6 bps to 3.356%.