Soft sentiment surveys sink Aussie dollar to seven-month low

SYDNEY: The Australian dollar was pinned to a seven-month low on Wednesday and trailing peers as grim economic surveys reinforced bets that local interest rates have peaked, while a hot US inflation reading raised expectations for a sharp move higher in US rates.

Overnight, only the oil-linked Norwegian krone fared worse than the Aussie when a hotter-than-expected US inflation reading set off a surge in the US dollar.

The Aussie slid about 0.9%, touching a seven-month low of $0.6844, with the break of support around $0.6855 opening the way for further losses.

The next support is $0.6748.

“A sustained break below $0.6850 could see downside momentum accelerate, particularly if higher US yields continue to undermine risk appetite,” said Chris Weston, head of research at Pepperstone in Melbourne.

On Tuesday, surveys in Australia showed consumer sentiment hit a four-year low in November and business conditions remained stuck in negative territory, a sign that things might be on the way to getting worse.

Rates markets are almost certain the Reserve Bank of Australia has finished hiking after five rate rises this year, and have priced in a 25 basis point cut by the end of next year.

That’s in contrast to the US, where traders now see a small chance of a 50 basis point hike next month after core CPI came in higher than expected at 0.3% for October.

Before the release, influential Fed Governor Christopher Waller had said policymakers should consider a 50 basis point move if core inflation hit 0.3%.

The kiwi dollar has gained this week and held up relatively better overnight.

It steadied at $0.5605. Election results showing Prime Minister Christopher Luxon’s incumbent three-party coalition could govern have been a support, on the basis it would preserve the central bank’s sole mandate on inflation and keep government spending steady.

Markets have priced three 25 basis point hikes in New Zealand through 2027.