SYDNEY: The Australian and New Zealand dollars slid on Tuesday as a rout in US tech stocks bruised risk sentiment, while President Donald Trump threatened to slap tariffs on a range of goods including copper and steel.
Australia is a major exporter of copper and the iron ore that is used to make steel, so such tariffs if implemented could be a drag on trade.
The Aussie skidded 0.4% to $0.6266, having already fallen 0.3% overnight and away from a five-week high of $0.6330. Support lies around $0.6250 and $0.6163.
The kiwi dollar fell 0.5% to $0.5668, after easing 0.3% overnight and away from a top of $0.5723. Support comes in at $0.5645.
“When in doubt, and against a spike in equity market volatility, the AUD, thanks to its liquidity, is the FX weapon of choice to express risk aversion,” noted Rodrigo Catril, a senior FX strategist at NAB.
That sparked demand for the relative safety of bonds, with Australian three-year futures jumping 8 ticks to a three-week high at 96.190.
The rout on Wall Street led the market to price in around 9 basis points more easing from the US Federal Reserve this year, and nudged up the probability of a first rate cut from the Reserve Bank of Australia next month.
Much depends on the consumer price report for the December quarter due on Wednesday where analysts forecast the trimmed mean measure to rise 0.6%, the smallest increase since mid-2021.
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The annual pace is seen slowing to 3.3%, while the six-month annualised pace would slow to 2.8% and back within the RBA’s target band of 2% to 3%.
“Our forecast for Q4 trimmed mean CPI of 0.4% and 3.1%, is aggressive, but we certainly see downside risk relative to the consensus,” said Andrew Ticehurst, an economist at Nomura.
“If we are close to the mark, we continue to think this will pave the way for a first RBA rate cut on 18 February.”
A closely watched survey of businesses from NAB out on Tuesday showed activity rebounded in December thanks to a pick-up in the hard-hit retail sector.
Encouragingly for inflation, labour costs eased even as the jobs market remained strong suggesting the low unemployment rate of 4.0% would not on its own be a bar to a rate cut.
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