SYDNEY: The Australian and New Zealand dollars were struggling to regain their footing on Thursday after a broad-based surge in their US counterpart breached major chart bulwarks and tripped stop-loss sales.
The Aussie was hanging on at $0.7204, having shed 0.9% overnight to a five-week trough of $0.7170. The break of support at $0.7220 encouraged fresh short selling by momentum funds likely eyeing the August low of $0.7107.
The kiwi dollar was lying prone at $0.6884, after losing 1.4% overnight to a five-week low of $0.6860. The break of support at $0.6982 and $0.6940 turned the technical outlook bearish, risking a test of its August trough of $0.6807.
A soft reading on Chinese manufacturing added to the negative background, overshadowing an improvement in the service sector.
Concerns about growth in China have combined with the prospect of early tapering by the Federal Reserve, and some other central banks, to sour global risk sentiment and benefit the safe-haven US dollar.
"We expect AUD to remain heavy while there is uncertainty about the US and Chinese economies," cautioned CBA analyst Joseph Capurso. "We stick with our assessment of risks that AUD could dip below $0.7000 before the end of the year."
The Reserve Bank of Australia (RBA) is widely expected to keep rates at 0.1% at its October policy meeting next week and to reiterate that no hike was likely until 2024.
While there have been calls to tighten to help restrain booming house prices, policy makers are instead ready to tighten macroprudential rules to dampen lending.
The Reserve Bank of New Zealand (RBNZ) has already announced a range of restrictions on lending and is set to go a step further by raising rates at its policy meeting next week.
The market is fully priced for a quarter-point hike to 0.5%, with another pencilled in for November.
Talk of a half-point rate rise next week has faded amid an increase in new coronavirus cases in Auckland. "We think that ongoing Covid risks warrant a cautious approach," said Michael Gordon, Westpac's acting chief economist for NZ.
"The Delta variant has proven much trickier to rein in, and our vaccination rate is still a long way from where it needs to be to provide effective levels of protection."
Only 38% of the country's population are fully vaccinated, though that share is rising quickly in the wake of the latest outbreak.