Australia, NZ dollars caught in crossfire from China woes, US yields

SYDNEY: The Australian and New Zealand dollars faced a fifth straight week of losses on Friday as angst over China’s ailing economy and surging US bond yields saw support steamrolled by bearish bets.

The Aussie was pinned at $0.6411, having shed 1.3% for the week so far to hit a nine-month trough of $0.6365. There is little in the way of chart support until $0.6273, ahead of its 2022 low at $0.6170.

The kiwi was off 1% for the week at $0.5924, after also touching a nine-month low of $0.5903. Support lies around $0.5840, while its 2022 nadir is still somewhat distant at $0.5512.

Adding to unease over China’s economy was strains in its financial system and property sectors, which were pressuring the yuan despite Beijing’s efforts to steady the currency.

Investors were shorting the Aussie and kiwi as liquid proxies for the yuan and China risk in general.

“The deteriorating situation in China means the risk of AUD dipping below $0.6000 before year-end is growing,” said Carol Kong, a currency strategist at CBA.

“Equally, the situation in China also raises the risk the Chinese government unveils a material fiscal pump-priming package, which would support metal prices and AUD.”

So far, Beijing has shown little appetite for such a debt-funded cash splash, leaving the Aussie to twist in the wind.

At the same time a run of upbeat economic news in the United States has led markets to sharply scale back expectations for rate cuts next year and, combined with a massive round of new issuance, pushed longer-term Treasury yields higher.

This has lifted the US dollar across the board, and particularly on the yen, while slugging bond markets everywhere.

Australian 10-year yields have climbed to nearly their highest since 2014 at 4.29%, even as the Reserve Bank of Australia (RBA) has hinted that it might not have to raise short-term rates again.

Downside surprises in wage and jobs data this week has seen the market price out almost any risk of a rate hike in September and only a 44% chance of another move altogether.

New Zealand’s 10-year yields have spiked to their highest since early 2011 at 5.098%, even though the market again sees only a slight chance of further rate hikes.

While the Reserve Bank of New Zealand (RBNZ) did nudge up its rate outlook this week, policy makers sounded confident they had already done enough to curb inflation.