What’s going on here?
The Australian and New Zealand dollars reached near eight-month highs as inflation slowed, easing pressure on their central banks.
What does this mean?
The Australian dollar hit $0.6801, surpassing resistance at $0.6798 and peaking at $0.6813, while the New Zealand dollar held at $0.6239, reaching $0.6254 – its highest in eight months. Australia’s inflation slowed to 3.5% in July, down from 3.8%, with core inflation also easing. Though the Reserve Bank of Australia (RBA) sees core inflation still too high for rate cuts this year, market sentiment suggests a 48% chance of easing in November, increasing to nearly certain by December. Meanwhile, the Reserve Bank of New Zealand (RBNZ) cut rates by a quarter point to 5.25% and hinted at further reductions, with the market expecting an additional 75 basis points cut by year-end.
Why should I care?
For markets: Navigating currency peaks.
The jump in the Aussie and Kiwi dollars signals changing market dynamics as inflation cools. With the Reserve Bank of New Zealand’s proactive approach and the Reserve Bank of Australia’s cautious stance, these currencies are set to be key indicators of economic trends. The Federal Reserve, Bank of Canada, and European Union’s anticipated rate cuts next month could further influence global market sentiment.
The bigger picture: Global shifts in monetary policy.
As central banks around the world, including in Canada and the EU, prepare for rate cuts, we are witnessing a significant shift in global monetary policies. This transition could impact international trade, investment flows, and economic stability. For instance, lower rates generally stimulate borrowing and spending, but they can also lead to currency depreciation, influencing trade balances and economic growth.
