Australia, NZ dollars pinned near multi-month lows, RBA set to hike
SYDNEY: The Australian and New Zealand dollars languished near multi-month lows on Monday, as rising oil prices added inflation risks and lifted US yields, with their technical outlook turning increasingly bearish. The Aussie was flat at $0.7020, after losing 1.5% last week to hit an eight-week low of $0.7004. It was the third straight week of declines that broke key support at the 200-day moving…
The Australian and New Zealand currencies found themselves near multi-month lows on Monday, as surging oil prices heightened inflation concerns and propelled U.S. yields. The Australian dollar remained flat at $0.7020, after slipping 1.5% last week to its lowest level in eight weeks at $0.7004. This marked the third consecutive week of declines, breaking a crucial support level at the 200-day moving average of $0.7025, and positioning it significantly below its four-month peak of $0.7238 observed just over two weeks prior.
Despite markets reducing the probability of further rate hikes, the Reserve Bank of Australia is now widely expected to increase interest rates by 25 basis points to 4.60% on Tuesday, marking its fourth hike this year. Traders now anticipate around 40 basis points of additional tightening following Tuesday's meeting.
Joseph Capurso, head of foreign exchange at the Commonwealth Bank of Australia, noted that the AUD/USD pair might find some brief support from the "hawkish hike" announced by the Reserve Bank on Tuesday. However, he remains confident that the Australian dollar will continue its downward trajectory this week, potentially testing the $0.6951 level.
Capurso explained, "The strength of the U.S. economy is drawing capital and exerting pressure on all currencies. Robust economic growth combined with sluggish labor force growth creates a perfect storm for persistent high inflation."
On Wednesday, Australia will release the monthly inflation data for August. Forecasts point to an annual increase of 4% in headline inflation, up from 3.5% in July, driven by rising petrol costs, while underlying inflation remains stubbornly high at 3.6%. Meanwhile, across the Tasman Sea, the New Zealand dollar reached a three-month low of $0.5650, declining 1.1% last week to mark its fifth consecutive weekly decline.
Key support now lies at the July low of $0.5627. Paul Bloxham, chief economist at HSBC, anticipates a more aggressive stance from the Reserve Bank of New Zealand after two rate hikes this year, with the economic recovery accelerating. "Given the well-below neutral cash rate starting point in New Zealand, there is a pressing need to hike faster," Bloxham stated.
"Our analysis suggests the RBNZ is likely to hike again in Q4, with a high likelihood of another hike in October, and potentially twice more in the second half of 2027." Market projections now suggest an 80% probability that the Reserve Bank of New Zealand will increase rates by a quarter point to 3.0% at its upcoming meeting on October 28, with a potential trajectory toward 4.0%.
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