Australian dollar plumbs to new 2-1/2-year low, kiwi edges up

THE Australian dollar plumbed a new 2-1/2-year low on Monday, after strong US jobs growth bolstered the safe-haven greenback, while the New Zealand dollar held up better amid bets of aggressive rate hikes from its central bank.

The Aussie slid to as low as US$0.6343, the weakest since April 2020, before trimming some losses.

It slumped 1.2 per cent on Friday, hammered by US jobs figures that showed nonfarm payrolls increased by more than expected and the jobless rate dipped to 3.5 per cent, below forecasts.

The upbeat payrolls report seemed to seal the deal on another outsized rate hike from the Federal Reserve, with markets now pricing in a 78.1 per cent probability of a 75 basis point hike next month, hitting stocks and lifting the US dollar.

The kiwi rose 0.5 per cent to US$0.5619, a touch above its recent 2-1/2-year trough of US$0.5565.

The currency tumbled 1.1 per cent in the previous session on the back of a strong US dollar.

“We are reluctant to call a peak in the USD, given a still hawkish Fed and rising risks of a global recession and which we are not convinced is adequately priced into risk asset markets,” said Ray Attrill, head of FX strategy at NAB.

“This is an ongoing threat to AUD given its risk sensitive/pro-cyclical nature and high correlation to global growth.”

Carol Kong, a senior currency strategist at CBA, expects the Aussie dollar to set a new cyclical low below US$0.6200 this week.

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“The weakness in commodity prices and pick-up in volatility is compounding AUD’s woes,” Kong said.

Analysts also said a growing divergence between Australia and New Zealand’s monetary policy, with the Reserve Bank of Australia having downshifted to a smaller hike while the Reserve Bank of New Zealand has stuck to raising interest rates aggressively, could underpin the kiwi against the Aussie.

The Australian dollar eased 0.3 per cent to NZ$1.1309 on Monday.

Yields on Australian 10-year bonds stood at 3.906 per cent, compared with its previous close of 3.856 per cent.

The spread over Treasuries edged back to positive territory at 2 basis points, after dropping to -2 bps on Friday. REUTERS