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: https://www.businesstimes.com.sg/banking-finance/australian-new-zealand-dollars-regain-their-footing-after-fed-setback