SYDNEY: The Australian and New Zealand dollars hit one-month lows on Tuesday after breaching key support levels as risk appetite ebbed, while domestic data added to signs that interest rates Down Under have peaked and the next move would be down.
The Aussie fell 0.5% to $0.6625, the lowest level in a month, after a 0.4% drop overnight. It had been struck in a narrow range of $0.6640 and $0.6730 for the past two weeks, failing to break any higher.
Sellers piled in as risk appetite took a turn for worse in Asia, targeting the 200-day moving average of $0.6580 now that the level of $0.6640 has been breached.
The kiwi fell 0.5% to $0.6165, having dropped 0.7% overnight.
Support is now at about 61 cents after the level of $0.6180 has given way.
The two also gave more ground on the euro after European Central Bank officials overnight warned cutting interest rates too fast may prove self-defeating, triggering a rise in euro zone yields, which spilled over to the bond market globally.
Australia’s three-year government bond yield rose 5 basis points (bps) to 3.72%, while 10-year yield climbed 6 bps to 4.154%.
Data released on Tuesday showed New Zealand’s business confidence improved significantly in the fourth quarter, with just a net 2% of firms expecting business to deteriorate, compared with 52% being pessimistic in the previous quarter.
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Satish Ranchhod, a senior economist at Westpac, said the survey pointed to a Goldilocks combination of economic conditions at the start of 2024.
“Trading activity has been resilient and businesses are looking to take on staff. At the same time, the strong inflation pressures that have been buffeting the economy are easing.”
Markets wagered the Reserve Bank of New Zealand (RBNZ), which has flagged the risk of higher interest rates, is done tightening.
They have also priced in 100 basis points of easing this year.
RBNZ Chief Economist Paul Conway will deliver a speech on Jan. 30 and is likely to push back on market exuberance for rate cuts with financial conditions easing.
The two-year swap rate hovered at 4.7020%, way off from 5.2% in early December.
In Australia, a survey showed consumer sentiment took a turn for the worse in January as cost-of-living pressures and high mortgage rates stoked concerns over finances, suggesting rate hikes were working to cool demand.
Markets also suspect interest rates in Australia have peaked, although they only see a modest easing of 50 basis points from the Reserve Bank of Australia this year, likely commencing in August.
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