SYDNEY: The Australian and New Zealand dollars gave up some of their overnight bounce on Thursday, as relief at the Bank of England’s intervention in bond markets faded while the overall bearish trend showed no sign of reversing.
The Aussie slid 0.7% to $0.6476, after bouncing 1.3% overnight to as high as $0.6530 as risky assets staged a recovery following the intervention by the Bank of England to buy long-dated government bonds to stabilise a furious sell-off over concerns about Britain’s economic management.
Still, the Aussie was sitting precariously close to its lowest level since May 2020, after plumbing a fresh low of $0.6364 in the previous session, and bears can push and test that level again any time soon.
Australia, NZ dollars get a break from selling, bears still in control
The kiwi also shed 0.7% to $0.5690 on Thursday, reversing much of the gain overnight and edging closer to its March 2020 trough of $0.5469.
“AUD and NZD remain, overwhelmingly, at the mercy of global developments and swings in global risk sentiment.
On this front, there appears to be no shortage of risk factors to watch out for at present,“ said Andrew Ticehurst, a rate strategist at Nomura. “However, we suggest keeping a close eye on USD/CNH and USD/JPY.
If CNH weakens further, AUD and NZD will likely trade lower, while MOF intervention – more likely if USD/JPY rises above 145 – could provide temporary support for AUD and NZD, if it weakens USD.“
Domestically, a new monthly measure of Australian consumer prices on Thursday showed annual inflation eased slightly in August from July thanks to a steep drop in petrol prices, although inflation excluding volatile items accelerated.
The job market remained tight with vacancies dipping slightly from all-time highs, adding to the case that the Reserve Bank of Australia will likely lift the official cash rate by another half point to 2.85% at its policy meeting on Tuesday.
Following a retreat in global yields after the intervention from BoE, Australian 10-year government bond yields fell by 21 basis points to 3.901%. The spread over Treasuries remained slim at 14 bps.