SYDNEY: The Australian and New Zealand dollars skidded to multi-month lows on Monday as concerns about the Chinese economy and hawkish central banks haunted global share markets and battered bonds.
Chinese trade data for April were not as dire as feared, but the yuan still slid to a fresh 18-month low and dragged on the Aussie, which investors use as a liquid proxy for shorting the Chinese currency.
The Aussie fell 1.0% to its lowest in more than three months at $0.7005, taking out support at $0.7030 and pressuring the January trough of $0.6968. A break there would take it to territory not visited since mid-2020.
The kiwi had already hit a two-year trough of $0.6348 , having cracked support at $0.6375.
The next chart bulwark is around $0.6268. Three-year Australian bond futures remained under heavy pressure at 96.810. The contract shed 31 ticks last week alone to hit its lowest since mid-2012 at 96.675.
The prospect of more interest rate rises at home have provided scant support for the Aussie, with the Reserve Bank of Australia (RBA) seen far behind the Federal Reserve on tightening. Markets are priced for another quarter-point hike to 0.6% in June and a hike each month to near 3% by year end.
Australian dollar on a high after once-in-a-decade rally
That would be one of the most aggressive tightening cycles on record.
The Reserve Bank of New Zealand (RBNZ) is already well ahead with its tightening, having lifted rates to 1.5%, and markets are wagering on another 50 basis points to 2.0% at its policy meeting on May 25.
The odds could well change, depending on what an RBNZ survey of inflation expectations shows on Thursday. “Inflation expectations running well above the targeted 2% is a threat to the RBNZ’s credibility as an inflation fighting central bank,” said Jarrod Kerr, chief economist at Kiwibank.
“Any further push higher in expectations will only fuel the RBNZ’s resolve to tighten aggressively.”
He noted markets were pricing in a peak rate all the way up at 4.4%, a full percentage point above the RBNZ’s projected terminal rate of 3.35%.
“We believe the Kiwi market has gone too far, and rates will most likely fall following the RBNZ’s decision in a few weeks,” said Kerr.