Australian, New Zealand dollars get respite, but charts stay bleak

THE Australian and New Zealand dollars found a moment’s respite from selling pressure on Wednesday as bears paused for US inflation data, though it would take a major downside surprise to brighten the gloomy chart outlook. Analysts look for core prices to ease a little to 6.0 per cent and a bigger pullback could encourage talk inflation had peaked, dragging down bond yields and the US dollar. The Aussie could do with the help given it was hanging on grimly at US$0.6957, just above its lowest since July 2020 at US$0.6911. An attempted bounce overnight petered out quickly at US$0.6986 and left risks to the downside. Offshore events have also completely overshadowed a Federal election due on May 21, and in any case investors are far more concerned with what the politically independent Reserve Bank of Australia (RBA) may do on rates. The kiwi looked in even worse shape at US$0.6305, just a whisker above its two-year trough of US$0.6277. The next chart supports are around US$0.6268 and US$0.6230. “With global growth weakening, stagflation risks rising and Chinese lockdowns extending, the A$ should remain on the back foot, with critical support at US$0.6960 broken,” said Sean Callow, a senior currency strategist at Westpac. “We are surprised at how far and fast metals and energy markets have corrected, suggesting more aggressive demand destruction is taking place at the moment,” he added. “And with little obvious support near term, weakness in the A$ could extend all the way to US$0.6760.”

Iron ore, Australia’s single biggest export earner, slid to a two-month low on Tuesday as China showed no sign of easing its lockdown restrictions. The broad appreciation of the US dollar only adds to the pressure as it makes commodities more expensive in local currency terms. On the domestic front, a survey of Australian consumers showed last week’s hike in interest rates had not gone down well as sentiment slumped to the lowest since August 2020. Spending intentions were notably lower as consumers fretted about their finances given the RBA had flagged a whole series of rate increases. The sensitivity of Australia’s heavily-indebted households to rising borrowing costs is a major reason most analysts argue rates will not rise by as much as markets are projecting. Futures currently imply the 0.35 per cent cash rate will be near 3.0 per cent by the end of the year, which would be easily one of the most aggressive tightening campaigns in RBA history. Of the country’s four major banks, Westpac has rates at 1.75 per cent by Christmas and ANZ is at 1.5 per cent, while both CBA and NAB are at 1.35 per cent. REUTERS