SYDNEY: The Australian and New Zealand dollars eased on Monday following more data showing a fading post-pandemic recovery in China, the Antipodean economies’ biggest export market, as June factory-gate prices fell at the fastest in over 7-1/2 years.
The Aussie dipped 0.4% to $0.6668, having surged 1.0% on Friday to as far as 67 cents, a key resistance level that it has failed to breach sustainably in the past two weeks.
The kiwi also eased 0.4% to $0.6184, after rising 0.8% on Friday to as high as $0.6219. It has support at the 200-day moving average of $0.6177.
Australia, NZ dollars slip after Fed minutes, yields jump
On Friday, the much-watched U.S. payrolls report showed that job creation missed forecasts, but market expectations still lean toward the Federal Reserve resuming its tightening this month after the June pause.
Meanwhile, the jump in developed world yields caused ripples in currency markets, particularly in carry trades where investors borrow yen at super-low rates to invest in high yielding emerging market currencies.
The net result was a rush to close yen short positions which saw the Japanese currency rally across the board last week.
The kiwi, which hit an eight-year top of 89.68 yen just last Thursday, eased to 87.87 yen on Monday, while the Aussie recovered some losses to 95.29, after sliding to a four-week low of 94.73 yen on Friday.
“The risk of a pullback is much greater from those levels, and at an absolute level, they (carry trades) are becoming less attractive as well,” said Tony Sycamore, market analyst at IG.
“This is an another example of picking up those pennies in front of the steam roller - its just going to go badly.”
Aside from the deflation in China’s factory-gate prices, other data released by Beijing on Monday showed consumer prices failed to register any gains, adding to concerns that the domestic demand is faltering, and fuelling expectations for new policy stimulus measures.
Looking ahead, Reserve Bank of Australia Governor Philip Lowe will be speaking on the RBA review and monetary policy on Tuesday, while the Reserve Bank of New Zealand will decide on its July rate decision on Wednesday.
Markets are leaning towards a pause from the RBNZ, but see the risk of another hike to 5.75% by November.