The Australian and New Zealand dollars sank to multi-year lows on Tuesday after the Reserve Bank of Australia's surprised many in the markets with an early move to cut some of the developed world's highest interest rates. The outlook for both Antipodean currencies has worsened in recent weeks with concerns about growth generating expectations of generally looser monetary policy, but the RBA's decision still came as a shock to many.
Another burst lower in early European trade brought the Aussie's losses on the day to more than 2 percent and took it to an almost 6-year low of $0.7635. The kiwi fell 1.5 percent to $0.7185, its lowest since early 2011. Both recovered some ground as the session wore on but were still down more than 1 percent on the day and the outlook seemed bleak. "Its a big move and I think any bounce should be sold into," said Graham Davidson, a spot trader with National Australia Bank in London. "Generally when the RBA move, they tend to cut a handful of times. The feeling is of an economy where there is no source of growth, almost of despair."
Interest will now swing to a speech by New Zealand central bank chief Graeme Wheeler on Wednesday. "The only currency I would buy the Aussie against is the kiwi," Davidson said. "The RBNZ has been hiking but I think they will have to backtrack on that and Wheeler may take a softer tone tonight." Against the yen, the Aussie was down 2.5 percent at 89.43 yen, dropping below support at 90 yen for the first time since February 2014.
While the euro was steady against the dollar at $1.1342 , the yen continued a recent run, rising 0.2 percent against the dollar to 117.33. The euro, too, was down 0.25 percent against the yen at 133 yen. Awaiting the European Central Bank's launch of bond-buying in March, German 10-year government bond yields fell below the Japanese equivalent and a number of dealers said they saw value in the yen.
"There is a feeling that the Japanese could stay on hold for some time on any further monetary easing," said one dealer. "That is helping it and in general we had come a long, long way and much attention has switched to the euro." Another healthy mover was the Norwegian crown, pushed to its strongest in two-months at 8.6190 crowns per euro by a recovery in oil prices. The crown had taken a battering from the collapse in crude prices at the end of last year, falling to as much as 9.8988 crowns per euro in mid-December.