Australian, NZ dollars weaken as oil rally dampens risk appetite
SYDNEY: The Australian and New Zealand dollars fell on Monday as soaring oil prices, supported by fresh supply disruptions in the Gulf, fuelled expectations of further global policy tightening and weighed on risk sentiment. The Aussie, often seen as a proxy for risk appetite, weakened 0.3% to $0.7148 after losing 0.4% last week, retreating from a four-month high of $0.7238. The currency had been…
The Australian and New Zealand currencies weakened on Monday, as escalating oil prices due to disruptions in the Gulf fueled speculations of increased global policy tightening, dampening risk sentiment. The Aussie, often used as a gauge for risk appetite, dropped 0.3% to $0.7148 from $0.7238, a four-month high, after losing 0.4% last week.
The currency had been bolstered by hawkish central bank statements, with support levels at $0.7122 and $0.7067. The New Zealand dollar also declined 0.3% to $0.5796, its lowest since late July, extending a 1.2% slide from the previous week. Major support for the kiwi is at $0.5762, while resistance is around $0.5900. Brent oil prices surged 3% on Monday following fresh strikes on Saudi Arabia and ships in the Gulf, heightening concerns.
Asian stocks fell, with US inflation data surpassing expectations, increasing the likelihood of a Federal Reserve rate hike this week, with markets betting on an 84% chance. Analyst Joseph Capurso of Commonwealth Bank of Australia expects AUD/USD to continue its downward trend this week, potentially hitting the weak support of 0.7076, while a Fed rate hike could give the greenback a slight boost.
If the Fed doesn't raise rates, a steep 1%+ decline in the USD is anticipated. The Gulf's latest turbulence is among the risks the Reserve Bank of Australia has identified, which might necessitate additional policy tightening after three hikes this year. Markets price in an 80% chance of a rate increase at the RBA's September 28-29 meeting.
Governor Michele Bullock will address parliament on Friday, and investors are monitoring any clues that might suggest a rate hike later this month. Meanwhile, New Zealand will release its second-quarter domestic gross product data on Wednesday, with forecasts around a modest 0.1% increase in quarterly GDP, but annual growth rising to 2.3% from 1.5%.
Westpac analysts believe the New Zealand economy has performed better than expected amidst the Middle East oil shock. A more robust-than-anticipated GDP result could alleviate some concerns among monetary committee members regarding downside risks to growth. Swaps now indicate an equal chance that the Reserve Bank of New Zealand may raise interest rates for the third consecutive time in October, although the central bank has stated that further policy tightening would be gradual.
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