SYDNEY: The Australian dollar on Monday fell to the lowest in more than a month, as a sharp bounce in local retail sales failed to soothe concerns about aggressive interest rate hikes from global policymakers, pushing government bond yields sharply higher.
The Aussie dropped 0.7% to $0.6843, breaching its recent major support level of around $0.6855, after tumbling 1.3% overnight. It now has support at its two-year low of around $0.6680.
The New Zealand dollar fell 0.5% to $0.6103, the lowest since July 14. It also plunged 1.5% in the previous session, during which bears pushed through its recent support of around $0.6160. The next support is at its pandemic low of $0.6060.
Federal Reserve Chair Jerome Powell, in a much anticipated speech, signalled on Friday that interest rates would be kept higher for longer to bring down soaring inflation, warning that Americans were headed for a painful period of slow economic growth and possibly rising joblessness.
“(For AUD/USD), a deeper correction inside our 0.65-0.70 preferred trading range is possible pending signs of stabilisation in risk sentiment,” said Ray Attrill, head of FX strategy at NAB.
“In the absence of demand destruction that reverses the terms of trade boom, higher levels are justified but it is contingent on USD weakening.”
The safe-haven U.S dollar on Monday surged to a 20-year high against a basket of currencies after the comments from Powell unnerved investors about global growth.
Australia dollar left flat by mixed jobs data, NZ$ gets no rate lift
Australian retail sales jumped past all expectations in July, data showed on Monday, as shoppers spent big on clothing and food in a sign of consumer resilience. However, that failed to arrest declines in the Aussie.
Yields on Australian government bond futures spiked as traders bet the Reserve Bank of Australia might have to be more aggressive to tame inflation, which ran at a 21-year peak in the June quarter.
The three-year yield shot up 18 basis points to 3.444%, the highest since late June, while the 10-year yield rose to 3.721% from the previous close of 3.597%.
Markets are wagering that there will be another hike of 50 basis points at the next policy meeting on Sept. 6 and that rates will peak around 3.85% in April or May next year.