Key Takeaways
- Australian dollar falls 0.3% to $0.7148 as oil prices rise.
- New Zealand dollar slips 0.3% to $0.5796, its lowest point since late July.
- Markets anticipate Federal Reserve rate hike amid hot US inflation data.
The Australian and New Zealand dollars have weakened in response to a significant rise in oil prices, according to market analysts. The Australian dollar, often seen as a proxy for risk appetite, fell 0.3% to $0.7148, retreating from a four-month high of $0.7238.
The New Zealand dollar also experienced a decline, slipping 0.3% to $0.5796, its lowest point since late July, following a 1.2% fall from the previous week.
The surge in oil prices, supported by fresh supply disruptions in the Gulf, has fueled expectations of further global policy tightening, dampening risk sentiment. Brent crude climbed 3% on Monday after fresh strikes in the region tested market nerves.
Asian stocks have also been affected, with the hotter-than-expected US inflation data helping to lift market expectations of a Federal Reserve rate hike this week. Markets are currently pricing in an 84% chance of such a move.
Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, stated, 'AUD/USD will continue to fall this week in our view, possibly testing weak support at 0.7076.' He added that the greenback will receive a modest boost if the Federal Reserve hikes rates on Wednesday.
The latest escalation in the Gulf is among the risks the Reserve Bank of Australia has flagged as potentially requiring further policy tightening after three rate hikes this year. Markets are pricing in an 80% chance of an increase at the RBA’s September 28-29 policy meeting. Governor Michele Bullock will appear before parliament on Friday, with investors watching for any signals that could pave the way for a rate hike later this month.
Across the Tasman sea, New Zealand will publish its second-quarter domestic gross product data on Wednesday. Forecasts are centred on a small rise of 0.1% in quarterly GDP but annual growth picked up to 2.3% from 1.5%.
Analysts at Westpac noted, 'The New Zealand economy has held its ground, better than we dared to hope in the early stages of the Middle East oil shock.' A stronger-than-expected GDP result could certainly assuage some of the (monetary) committee members' concerns about downside risks to growth.
Swaps are now implying a split chance that the Reserve Bank of New Zealand could hike interest rates for a third time this year in October, although the central bank itself has said further policy tightening would be gradual.
AUD/USD will continue to fall this week in our view, possibly testing weak support at 0.7076.
Joseph Capurso, Head of international economics at the Commonwealth Bank of Australia
The New Zealand economy has held its ground, better than we dared to hope in the early stages of the Middle East oil shock.
Analysts at Westpac, Not specified
