SYDNEY: The Australian and New Zealand dollars were facing a fourth straight weekly loss on Friday as yield differentials moved in favour of their US cousin, while unease over the Chinese economy showed no sign of abating.
The Aussie was huddled at $0.6520, having fallen 0.7% for the week so far and further away from its July high of $0.6895.
The bearish momentum suggested a test of its low for the year at $0.6459 was likely in the near term.
The kiwi dollar had lost 1.4% for the week to $0.6009, and was already within a whisker of its 2023 low of $0.5986.
Not helping the Aussie’s cause was more dovish comments from Reserve Bank of Australia (RBA) Governor Philip Lowe, who told lawmakers interest rates were either at or near a peak, and any move from here would be mere “calibration”.
Markets now imply a 90% probability rates will stay at 4.1% for a third month in September, and around a 50-50 chance increases are over.
“We now think the RBA has reached its peak target cash rate,” said Prashant Newnaha, a senior rate strategist at TD Securities, who had previously looked for a top of 4.85%.
“The odds of a hike next month or in October are low but the RBA could potentially take out insurance and hike in November,” he added.
“That said, the hurdle to hiking is high and the Bank would need to see evidence that high labour costs are being passed through to higher prices over successive months.”
The gulf between Australian rates and the US cash rate of 5.25%-5.5% means the Aussie is no longer a high yielder among currencies.
Australian 10-year yields are paying almost exactly the same as US bonds, compared with a premium of as much as 30 basis points in July.
Both antipodean currencies have also been undermined by disappointing trade and inflation data from China, the biggest buyer of their resource exports.
As a result, prices for iron ore are testing major support at $100 a tonne.
The ore is Australia’s single biggest export earner. New Zealand’s biggest export, dairy, has also been dragged by soft demand from China.
“We have revised down our farmgate milk price for the 2023-24 season,” said analysts at ANZ in a note.
“We expect ongoing weakness in demand from China over the rest of the year.”
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