Australia, NZ dollars skid as markets wager on US rate hikes
- The Aussie fell 0.4% on Wednesday to $0.6892
SYDNEY: The Australian and New Zealand dollars skidded on Wednesday after a bruising month of losses, as markets wagered on near-term U.S. rate hikes while paring back expectations for tightening at home.
Bond markets were also under pressure after U.S. Treasury yields spiked overnight as futures narrowed the odds on rate hikes from the Federal Reserve ahead of crucial jobs figures on Thursday. A move in September is almost fully priced in.
The Aussie fell 0.4% on Wednesday to $0.6892, after finishing last month 3.7% lower. That reversed a 0.5% gain overnight to trade just above a three-month low of $0.6867, with bears aiming the March trough of $0.6834.
The kiwi dollar eased 0.2% to $0.5665, having ended June 5.2% lower. It rose 0.5% overnight to as high as $0.5690, with support at the year-to-date low of $0.5627. A break there would threaten major support at $0.5581.
“We still expect AUD/USD to decrease further as the yield differential moves in favour of the USD,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.
June was dominated by a sharp de-escalation of the Middle East conflict with the reopening of the Strait of Hormuz. Oil prices were back to their pre-war levels, easing inflation risks.
That was partly why markets have scaled back expectations for rate hikes in Australia. There is now a 15% chance of a rise in the 4.35% cash rate at the next meeting from the Reserve Bank of Australia in August, and a 50% probability it is done hiking for this cycle.
The Reserve Bank of New Zealand meets next week and markets imply around a 74% chance of a quarter-point rise in the 2.25% cash rate, though analysts are more divided on the need for a move given the recent slide in oil prices.
“Much has changed over the past six weeks,” said Kelly Eckhold, chief economist at Westpac NZ.
“Therefore, while three MPC members had voted for a rate hike in May, we think the ‘on hold’ decision may well be reached by consensus.”
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