SYDNEY: The Australian and New Zealand dollars were headed for heavy weekly losses on Friday after plumbing six-month lows, as a disappointing China recovery, the US debt ceiling impasse and hawkish Federal Reserve pricing bolstered the dollar.
The Aussie hit a new six-month low of $0.6490 on Friday before steadying at $0.6507.
That brought its weekly decline to 1.6%, with traders turning their attention to the US Personal Consumption Expenditures (PCE) Price index later in the day, Fed’s preferred gauge of inflation. The kiwi was reeling at $0.6069, after falling 0.8% overnight to a fresh six-month low of $0.6045.
It is set for a weekly drop of 3.3%, the most since September, with the additional blow coming from a dovish Reserve Bank of New Zealand that unexpectedly signalled rate hikes are finished.
Overnight, US President Joe Biden and top congressional Republican Kevin McCarthy appeared to be nearing a deal to raise the government’s debt ceiling, but market jitters are abound, with just a week to go before the so-called “X-date” on June 1.
Upbeat US jobless claims data led markets to scale back bets that the Fed would keep rates steady next month. Fed funds futures have wagered on a 60% chance of a pause, with just 15 basis points of cuts priced in by the end of the year.
The US PCE price index for April could be crucial in moving the current pricing. Core PCE is expected to have risen 0.3% from March, and 4.6% year-over-year.
“I would argue that the USD has become somewhat of a magical currency, where we’re seeing safe-haven flows, as well as a cyclical element, where US data has recently been better than feared,” said Chris Weston, head of research at FX trading platform Pepperstone. Weighing on the Antipodeans are falling commodity prices as China’s economic recovery staggered.
Australia, NZ dollars get a reprieve after dovish Powell, await RBNZ
Copper prices were set for a sixth weekly decline and Dalian iron ore futures slid to the lowest in nearly six months. Local bonds joined a global sell-off as US yields rose.
Benchmark ten-year Australia government bond yields increased 6 basis points to 3.754%, while three year yields were also up 6 bps to 3.473%.