SYDNEY: The Australian and New Zealand currencies hit two-year lows on Thursday after the Federal Reserve signalled a slower pace of US rate cuts in the year ahead, a hawkish turn that sent global stocks plunging, yields spiking and the dollar ascending.
The kiwi also got a double hit from dismal data that showed the local economy sank into recession in the third quarter as activity dived far more sharply than expected, cementing the case for aggressive policy easing.
The Aussie hit a fresh two-year low of $0.6198, having plunged 1.9% overnight to break below a key support level of $0.6271.
With that level gone, bears are targeting $0.6170, the low from October 2022.
The kiwi dollar fell to $0.5611, after diving 2.3% overnight to as far as $0.5620.
Support is scant until $0.5510, the low from October 2022. Overnight, the Fed cut interest rates by 25 basis points as widely expected but projected just two rate cuts for all of 2025, compared with four previously.
One policymaker, Cleveland Fed President Beth Hammack, even dissented against the cut decision.
That was enough to send markets reeling.
Australia, NZ dollars on defensive as risk assets hammered
Futures sharply scaled back the extent of policy easing next year, with the Fed now expected to stay put throughout the first half of the year.
A rate cut is not seen until July, while only 32 basis points of easing is priced in for all of 2025.
“This was probably the last easy cut by the Fed and the tail risks in future meetings will be more pronounced,” said analysts at TD Securities.
“The USD has inflation, carry, growth, equity momentum on its side and Trump will engineer US exceptionalism at the cost of growth in China and euro area. We remain overall USD bulls.”
In New Zealand, two-year swap rates fell 5 basis points to 3.49% after data showed the economy shrank by a huge 1% in the third quarter.
Dealers said swaps implied 54 basis points of easing for February, although liquidity is thin at this time of the year.
The two Antipodean dollars also dived against other major currencies.
The Aussie fell 1% overnight on the Japanese yen and hit a four-month low on the euro.
The kiwi tumbled to a three-month low on the yen.
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