SYDNEY: The Australian and New Zealand dollars wallowed at one-week lows on Wednesday, after warnings of an impending recession from top US bankers drove the US dollar higher, with markets already on edge ahead of major interest rate decisions next week.
Facing the greenback’s newfound strength, the Aussie was hanging at $0.6697, after giving up all of the gains made after the Reserve Bank of Australia raised interest rates to a 10-year high on Monday and warned that more hikes would be needed to tame inflation.
There was little reaction to the slight miss on Australia’s third quarter gross domestic product data.
The Aussie now faces resistance at Tuesday’s high of $0.6744, while having support at 66.5 cents.
The kiwi was hovering at $0.6315, after finishing the previous session flat.
Overnight, top bankers from JPMorgan Chase & Co, Bank of America and Goldman Sachs said that the banks are bracing for a worsening economy next year, as inflation threatens consumer demand.
Australia, NZ dollars hit multi-month highs; RBA in focus
That undermined risk appetite, sending Wall Street down and bonds up.
“Optimism about an easing of COVID restrictions in China was offset by worries about the impact of higher interest rates on economies,” said Stephen Wu, economist at Commonwealth Bank of Australia.
“The US Federal Reserve, Bank of England and European Central Bank all hand down rate decisions next week.”
In China, more signs that the country is loosening its zero-COVID policy emerging, with the capital city Beijing dropping testing requirements for residents to enter some of the public venues.
The prospect of a boost to China’s economy favours the Australia and New Zealand’s currencies as China is their major export market.
Analysts at ANZ expect the foreign exchange markets to be relatively range bound ahead of the US CPI data next week. Australian government bond yields eased slightly. Yields on 10-year bonds fell 5 basis points to 3.364%, leaving the spread over the Treasuries at minus 18 basis points.
Three-year yields stood at 3.066%, pulling away from the recent 3-1/2 month low of 2.973%.