Australian dollar stumbles as AI trade sputters, kiwi steadies after rate rout
SYDNEY: The Australian dollar stumbled on Friday as hefty cash burn by tech giants sparked a rout in equities and dented risk assets, while the New Zealand dollar steadied after being battered by a surprise decision of the central bank to keep rates unchanged. The Aussie held at $0.7025, after falling 0.4% overnight and fading away from a five-week top of $0.7068. Resistance is now around the…
Sydney saw the Australian dollar suffer on Friday as big tech companies reported losses, causing a drop in stocks and a decline in risk assets. The Kiwi dollar, on the other hand, stabilized after the New Zealand central bank decided to keep interest rates unchanged, despite causing a shock to investors. The Aussie traded at $0.7025, down 0.4% from the previous day and failing to reach a five-week high of $0.7068.
It now faces resistance around the 200-day moving average at $0.7058, with support at 70 cents. The currency also declined in comparison to its peers, falling 0.5% against the kiwi and 0.5% against the Japanese yen to 110.8 yen. Over the week, the Aussie remained relatively unchanged, buoyed by expectations that the Reserve Bank of Australia would raise interest rates by a fifth time this year to 4.85%.
While hot inflation data and hawkish comments from policymakers have increased the odds of a rate increase to 80%, down from 25% two weeks ago, the currency's role as a gauge for global risk leaves it susceptible to further drops if the AI-driven surge in tech stocks continues. Lachlan Dynan, a macro strategist at Deutsche Bank, believes the currency may prove more resilient than investors anticipate.
"In the event of a broad-based loss of confidence in AI, it will likely be difficult for AUD to fully escape the traditional risk and commodity exposure and the AI domestic narrative, certainly on crosses," Dynan commented. "But given the likely US-centric nature of the shock and related downward pressure, AUD/USD may be relatively flat, modestly lower or possibly modestly higher alongside a broadly weaker USD."
The kiwi remained steady at $0.5630, after gaining 0.1% overnight. It is set for a weekly loss of 1.2%, nearing a major support level at $0.5566. The Reserve Bank of New Zealand surprised investors by maintaining its interest rates at 2.75% on Thursday, when markets had anticipated a quarter-point hike to 3.0%. Assistant Governor Karen Silk said she would back a rate hike in December if economic conditions remain favorable.
Markets now suggest a 76% probability of a rate increase in December, with predictions that rates could peak at 3.75% or higher.
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