SYDNEY: The Australian and New Zealand dollars struggled to rise from three-week lows on Friday after strong US data boosted the case for more rate increases, while downbeat Chinese factory data also dented sentiment on the margin.
The Aussie steadied at $0.6619 in quiet trade after a whippy session that saw it plough a fresh three-week trough of $0.6595 before recovering all the losses.
It now faces resistance at the 200-day moving average of $0.6693, while eyeing the 2023 low of $0.6459.
The kiwi dollar rose 0.2% to $0.6086, having also slumped to a new three-week trough of $0.6050 overnight.
The next bear targets are $0.6031 and $0.5986. Overnight, a slew of strong US data, including an unexpected fall in jobless claims and the upward revision to first quarter GDP, supported a hawkish Federal Reserve Chair Jerome Powell who on Thursday signalled more tightening is likely needed.
Markets now see an 88% probability that the Fed will raise next month, while awaiting the US Personal Consumption Expenditures (PCE) index reading on Friday, the Fed’s favoured inflation gauge, for clues on how much higher rates might go.
Australia, NZ dollars scramble for support as sellers pile in
In China, the onshore yuan hit an eight-month low before steadying at 7.2496 per dollar.
Factory activity there declined for a third month in June, bad news for Australia which relies on China for its commodity exports.
The hawkish bias of the Reserve Bank of Australia (RBA) has provided some support for the Aussie, as markets, despite leaning towards a pause by the RBA next week, see a chance of a quarter-point increase at 40% after strong retail sales data.
Three out of four Australian major banks expect the RBA to increase the rate. Bill Evans, chief economist at Westpac, on Friday reaffirmed his call of an increase in the cash rate to 4.35%, citing still high core inflation, low jobless rate and the current rate not being restrictive enough.
“A second pause, to gather further information, seems unnecessary and only risks the need for the cycle to extend even further into 2023 when the prospects for damage to the economy increase substantially,” said Evans.
The RBA first paused in April before resuming its increases in May and June.