What’s going on here?
Both the Australian and New Zealand dollars are struggling amid changes in US expectations and uncertainty about policy support from China. This currency slump reflects wider economic swings between these major global players.
What does this mean?
The Australian dollar has seen a downward trend, approaching $0.6716, largely due to the lack of fresh stimulus measures from China and evolving expectations about US interest rate cuts. It’s heading towards its 200-day moving average of $0.6627. Simultaneously, the New Zealand dollar plummeted to a seven-week low of $0.6050, breaking past its 200-day moving average after the Reserve Bank of New Zealand announced a half-point rate cut. Swaps now indicate a 13% chance of a more aggressive 75 basis point cut in November. Meanwhile, the US dollar is gaining strength driven by the robust domestic economy and China’s tentative stimulus signals.
Why should I care?
For markets: A dance of dollars and data.
The path of these currencies hinges on the upcoming US consumer inflation data. If the report comes in strong, it could reshape the Federal Reserve’s expectations for inflation – futures suggest there’s already a 20% chance the Fed might skip rate cuts next month. This is fueled further by solid US job data, potentially bolstering the US dollar while the Australian and New Zealand currencies remain under pressure.
The bigger picture: Global economic tug-of-war.
HSBC analysts argue that the Australian dollar’s undervaluation presents an opportunity, particularly if China’s policy response becomes more coordinated. Fiscal and monetary support from China can swing the pendulum. Meanwhile, an analyst from Capital.com warns that a higher-than-expected US CPI could prompt the Fed to tighten their stance on inflation, thereby accentuating the dollar’s strength amid America’s strong economic backdrop.
