SYDNEY: The Australian and New Zealand dollars enjoyed a rare bounce on Tuesday as investors trimmed oversold positions and volatility eased a little, though the overall bearish trend showed no sign of reversing as yet.
The Aussie edged up 0.4% to $0.6482, having hit its lowest since May 2020 at $0.6438 overnight.
That brought its losses to two cents in as many sessions and reached a bear target around $0.6460. Support now sits at $0.6400 and $0.6375. The kiwi rallied 0.7% to $0.5681, having shed 1.9% overnight to as low as $0.5627.
While technically oversold, it still looks likely to test the March 2020 trough at $0.5469.
“The darkening outlook for the global economy will weigh on commodity prices and commodity currencies,” said Carol Kong, a senior associate currency strategist at CBA.
Australia, NZ dollars hit new lows as traders buy dollars amid volatility
“The pick-up in financial market volatility is correlated with a weaker AUD, too. In the current environment, AUD can reach our Q1 2023 forecast of $0.62 early.”
Global bond markets continued to suffer the fallout from the UK’s debt-funded tax-cutting budget, which has seen British 2-year yields surge 100 basis points (bps) in just two sessions.
Such was the pressure on the pound that it briefly touched a 5-1/2 year low on the Aussie at A$1.5964, before steadying somewhat at A$1.6617.
Australian 10-year yields jumped 16 bps overnight to the highest since June at 4.108%. That merely matched the move in Treasuries and kept the spread over US yields to a slim 18 bps.
The drop in the Aussie is inflationary at the margin and adds to the case for another rate hike of 50 bps at the Reserve Bank of Australia’s (RBA) policy meeting next week.
Markets are leaning toward a half-point rise to 2.85% and rates as high as 4.45% by the middle of next year.
Across the Tasman, the Reserve Bank of New Zealand (RBNZ) is considered almost certain to hike by 50 bps at its meeting on Oct. 5 to take rates to 3.5%.
Markets have also steadily raised expectations for the likely peak for rates to almost 4.75%.
“What we do know is that the ongoing lows in the NZ Dollar are doing no favours towards the fight against inflation, with imported inflation only going to run dramatically higher,” Mieneke Perniskie, a trader at Kiwibank. “The Kiwi fell over 6% just in the last week.
This will place more pressure on the RBNZ to deliver further rate hikes, which have already been priced in, to a point.“