Australia, NZ dollars nurse losses as markets wager on hawkish Fed
SYDNEY: The Australian and New Zealand dollars languished near multi-week lows on Thursday as wagers on additional hikes in US interest rates buoyed the greenback and reinforced expectations of further policy tightening at home. The US Federal Reserve raised rates by 25 basis points, as expected, while also projecting at least one more increase by December. Futures now imply a roughly 50% chance…
The Australian and New Zealand dollars experienced a decline to near multi-week lows on Thursday, as investors wagered on the US Federal Reserve's anticipated interest rate hikes. The Fed had already raised rates by 25 basis points and indicated a likelihood of at least one more hike by December. This shift in policy boosted the US dollar's strength and heightened expectations of further policy tightening in Australia, New Zealand, Japan, the EU, and the UK.
The Australian dollar closed at $0.7096, marking a 0.6% drop and reaching a three-week low after breaching the $0.7100 mark, which was a bearish signal. The break above $0.7100 paved the way for potential support levels around $0.7070 and $0.6922. Meanwhile, the New Zealand dollar steadied at $0.5720, having fallen almost 0.8% overnight to a 10-week low. Support for the kiwi dollar now sits at $0.5672 and $0.5627.
The Fed's hawkish stance only reinforced the odds of additional interest rate hikes in the participating countries, with markets predicting an 87% chance of the Reserve Bank of Australia raising its cash rate by 25 basis points at its upcoming meeting on September 29. There is also a near full pricing for a move to 4.85% by February.
On the other hand, the Reserve Bank of New Zealand is expected to meet on October 28, with markets projecting a 65% chance of a further hike to 3.0%. However, the timing of the possible hike would be politically challenging due to an upcoming general election in November.
Economic data released on Thursday revealed that the Australian economy expanded by a meager 0.2% in the second quarter, driven mainly by exports, while the annual growth rate remained solid at 2.6%. Analysts at Goldman Sachs believe it is more likely that the Reserve Bank of New Zealand (RBNZ) will postpone any further rate hikes until after the election.
They also note that an updated set of forecasts due in December could prompt a hike in October. The consumer price index (CPI) data is scheduled for release on October 22, and the RBNZ is anticipating a deceleration in inflation to 3.9% after an energy-driven surge to 4.1% in the March quarter.
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