Australian and New Zealand Dollars Experience Significant Decline Amid Wall Street Turmoil
In light of recent market volatility, the Australian and New Zealand dollars have tumbled to 11-month lows, following a challenging week as the whipping boys of Wall Street. These commodity-sensitive currencies often mirror global risk sentiment and typically face downward pressure when equity markets experience a slide, as observed this week.
While a moderate rebound in U.S. stock futures provided some temporary reprieve, the Australian dollar remained uncomfortably close to Thursday’s trough of $0.6271, edging up slightly to $0.6333. Similarly, the New Zealand dollar struggled at $0.5822 after hitting a low of $0.5774 in the prior session.
The Australian dollar, in particular, appears to be heavily influenced by investor sentiment towards China and the United States, making it vulnerable to fluctuations. Analysts at Westpac suggest that AUD/USD could potentially target $0.6200 in the near future, especially given the ongoing Middle East conflict. However, the Australian dollar does find some support from rate expectations, which have been uncommon since the pandemic.
Westpac now believes that a rate hike in November is more likely than not. This sentiment was reinforced by a surprisingly high inflation reading this week, leading to an increase in the probability of a 4.1% cash rate hike to 50-50. Although Reserve Bank of Australia (RBA) Governor Michele Bullock declined to comment on tightening prospects, she did emphasize the central bank’s intolerance for higher inflation. The RBA will convene for its next policy meeting on November 7.
Australian economists at CBA also anticipate a 25-basis-point rate increase, estimating a 70% probability. To bring inflation down to the desired level, they expect the cash rate to remain at a restrictive level for an extended period. Market implications suggest that some risk rates could surge as high as 4.60%, while any possibility of a cut in 2024 has been eliminated.
Gareth Aird, head of Australian economics at CBA, predicts that September next year may witness an easing as data indicates inflation returning to the RBA’s target band of 2-3%. Aird anticipates 75 basis points of easing in late 2024, which would set the end-of-year cash rate at 3.60%. Additionally, he suggests a further 75 basis points of easing in the first half of 2025, potentially bringing the cash rate to 2.85%.
As the Australian and New Zealand dollars teeter near 11-month lows, investors remain keenly focused on Wall Street’s volatility. The anticipation of a November rate hike provides some limited support, but the ongoing risk sentiment surrounding China and the United States keeps the currencies on edge. The coming months will reveal whether these currencies can reclaim their strength or continue their downward trajectory amidst unpredictable market conditions.
**Disclaimer: This article contains market speculations and should not be taken as financial advice. Readers are encouraged to conduct their own research and consult financial professionals for investment decisions.
