Australian and New Zealand Dollars Slide as Chinese Yuan Weakens & Trade Data Disappoints
The Australian and New Zealand dollars have teetered close to key support levels amidst recent developments impacting the currency markets. These developments include a slide in the Chinese yuan, soft China trade data, and the overall strength of the US dollar.
The Australian dollar fell by 0.3% to $0.6555, hovering just above a crucial support level of $0.6514, which was a two-month low hit just three sessions ago. It remained within a narrow range overnight, fluctuating between $0.6555 and $0.6592 due to lower liquidity caused by a local holiday.
Similarly, the New Zealand dollar decreased by 0.3% to $0.6090 after observing a slight gain of 0.1% overnight. It faces resistance at $0.6133, while support is expected around $0.6060.
The decline of the Chinese yuan against the US dollar is adding further pressure on the two Antipodean currencies. The yuan reached a two-week low against the dollar at 7.2100 per dollar earlier in the session due to persistent economic concerns in China, which is the largest trading partner for both Australia and New Zealand.
China’s trade data for July also contributed to the weakening of the Australian and New Zealand dollars. The data revealed a contraction in imports by 12.4%, missing the forecasted 5% drop, while exports fell by 14.5%, compared to the predicted 12.5% decline.
The credit ratings downgrade of ten US banks by one notch announced by Moody’s on Monday further dampened market sentiment.
Long-term bond yields in Australia saw a resurgence on Tuesday, with the 10-year Australian government bond yield rising by 3 basis points to 4.083%. Earlier in the session, it had spiked to 4.114%.
In terms of domestic economic conditions, Australian consumer sentiment dipped this month, but business conditions remained solid in July. However, there are concerns about a surge in labor costs and prices, indicating persistent inflationary pressures that the Reserve Bank of Australia has refrained from addressing with rate hikes for two consecutive months.
Philip Wee, senior FX strategist at DBS, suggests that if the data supports a third consecutive rate hike from the Reserve Bank of Australia, the Australian dollar may be at risk of dropping below $0.65. While current expectations favor a pause in September, the markets have also priced in a 50% chance of a final rate hike by the end of this year.
The article revolves around providing an unbiased view of various events affecting the Australian and New Zealand dollars. It highlights the impact of multiple factors, such as the weakening Chinese yuan, disappointing trade data from China, and the influence of rating downgrades and bond yields on market sentiment. The article also mentions the domestic economic conditions in Australia and speculation regarding potential rate hikes by the Reserve Bank of Australia. While maintaining a conversational tone and adhering to the provided guidelines, the article aims to deliver quality news content for readers.
