market news

Australia, New Zealand dollars bounce back after Fed rate-hike setback

Australia, New Zealand dollars bounce back after Fed rate-hike setback

The currency of Australia and New Zealand are reportedly looking to regain their lost footing after having suffered a setback as global markets gambled on higher and longer rate hikes by US Federal Reserve, giving a break to an otherwise bullish weak.

The Australian dollar regained 0.5% to $0.6320 on Friday after it hit $0.6371 overnight on, but was still 1.4% down for the week and quite far from its $0.6493 high. The support lay between $0.6272 to $0.6212.

Meanwhile, the New Zealand dollar came at $0.5795, seeing a total drop of 0.4% in the week from its $0.5942 high. The support ranged between $0.5745 to $0.5662.

The Australian dollar suffered a bigger fall as markets priced in the US rate-hike peak at around 5.0-5.25%, exceeding what was expected at home.

This led to a 29-basis point drop in the Australian 10-year treasury yield, reaching levels that were not seen even pre-pandemic.

During its quarterly policy statement, the Reserve Bank of Australia (RBA) emphasized its dovish stance and how it wanted to curb inflation without leading the economy into recession. This is a major reason why the central bank continued with a small rate hike of 25 basis points this week, with rates now at 2.85%.

Gareth Aird, chief economist at CBA, stated that staying close to full employment while taming inflation to target is the first plan, and expects only one more hike to 3.10%.

But markets are not much optimistic and expect the rate hike to reach around 4% by mid-2023.

On the other hand, the Reserve Bank of New Zealand (RBNZ) continued emphasizing its goal to control inflation even if leads to recession.

Markets are expecting a major 75-basis points hike to 4.25% this month, resulting in rates reaching 5.25%.

Bill Evans, chief economist at Westpac, commented that with such a contrasting approach between RBNZ and US FOMC, and the RBA, the AUD is trading at a disadvantageous position.

But Evans believes that the Fed will come down to a 50-basis point hike in December, allowing AUD to reach almost $0.6500.

Source credit:

About the author

Pooja Sharma

Pursuing her professional career as a content writer for over two years now, Pooja Sharma is endowed with a post-graduate degree in English Literature. The articles that she writes are a balanced blend of her ever-growing love of language and the technical expertise that she has gained over the years. Currently Pooja pens insightful articles for Newsorigins and numerous other websites, covering subjects such as business, finance, and technology.