Australian dollar extends losing streak, kiwi endures rate pain

THE Australian dollar extended its losing streak on Thursday as the lack of China stimulus news and shifting US rate cut expectations turned against it, while the kiwi nursed heavy losses on the odds of even larger rate cuts.

The Aussie held at US$0.6716, having lost 0.4 per cent overnight in the fifth straight session of declines which have seen it hit as low as US$0.6708. It fell 3 per cent from its September peak to hover close to a three-week low, with bears now targeting the 200-day moving average of US$0.6627.

The kiwi dollar bounced 0.1 per cent to US$0.6071, after plunging 1.2 per cent overnight to as low as US$0.6050, a seven-week trough. It also broke key support at the 200-day moving average of US$0.6096 as the Reserve Bank of New Zealand on Wednesday stepped up its policy easing with a half-point move.

Swaps now imply a 13 per cent chance that the RBNZ could even cut by a 75 basis point in November, a reason that the kiwi lost 0.8 per cent on the Aussie overnight to the lowest in 2-1/2 months.

The near-term fate of both currencies now rests on the US consumer inflation data due later in the day where a hot print would add to the doubt that the Federal Reserve may not cut rates at all in November.

Futures now imply a small 20 per cent chance the Fed would stay put next month following a strong jobs report.

“An upside surprise in US CPI could force the Fed to doubt its confidence about the path for inflation,” said Kyle Rodda, analyst at Capital.com.

“The US dollar is regaining supremacy, in part due to disappointment about stimulus prospects out of China, but mostly because of continued US economic outperformance.”

The Aussie - a liquid proxy for the Chinese yuan given the country’s economic reliance on China - has also been dragged lower by investor disappointment that there has been no major stimulus announcement from Beijing in recent days, which sent prices for iron ore lower.

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China’s ministry of finance, however, scheduled a press conference for Saturday, keeping hopes of fiscal stimulus alive.

Analysts at HSBC believe the Australian dollar has further to climb, citing the currency’s cheap valuation on their models and China’s policy support.

“Markets appear to be casting doubt on whether the positive sentiment can be matched by actual economic benefits... We are more optimistic. We believe what matters most for the AUD is not the immediate size or effectiveness of the policy measures, but the ‘policy put’ co-ordinated across fiscal and monetary authorities,” they said in a note to clients. REUTERS