What’s going on here?
The Australian (AUD) and New Zealand dollars (NZD) have hit their lowest points in nearly two years, driven by global risk aversion and China’s ineffective economic easing.
What does this mean?
The Aussie dollar has dropped to $0.6546, marking a nine-day dip and a steep weekly loss of 2%. Its Kiwi counterpart stands at $0.5889, flat after nosediving to a three-month low of $0.5873, suffering a similar 2% weekly decline. Both currencies are oversold, signaling potential rebounds. However, the AUD must rise above the $0.6589 mark to reverse its downtrend. Simultaneously, relentless selling against the yen has resulted in a 6% and 6.2% loss over the past fortnight for the AUD and NZD, respectively. Despite strong US economic data, markets still anticipate a Fed rate cut in September, while the Reserve Bank of Australia (RBA) sees only a slim chance of a hike in August. Investors are eyeing second-quarter inflation figures due July 31 for clues on rate moves.
Why should I care?
For markets: Navigating the waters of uncertainty.
The drop in AUD and NZD reflects broader market anxieties. Surprising strength in the US economy hasn’t shifted expectations for a Federal Reserve rate cut, amid low inflation forecasts. The RBA has only a 20% chance of hiking rates in August, while a high core inflation figure could tilt the balance. In New Zealand, early and aggressive rate cuts are predicted, with markets pricing in a 44% probability of easing in August and expecting significant cuts through 2025.
The bigger picture: Global economic shifts on the horizon.
As proxies for the Chinese yuan, the fortunes of the AUD and NZD are closely linked to China’s economic health. Persistent negative sentiment towards China has weighed on commodity prices, affecting both currencies. Their latest declines underline the global economies’ interconnectedness and highlight the ongoing struggles to regain stability amid geopolitical and economic uncertainties.
