Key Takeaways
- Australian dollar falls to three-week low following US Federal Reserve rate hike.
- New Zealand dollar steadies but remains under pressure with election looming.
- Markets anticipate further interest rate increases in Australia and New Zealand.
The Australian and New Zealand dollars have experienced significant fluctuations in the wake of the US Federal Reserve’s decision to raise interest rates by 25 basis points, with both currencies weakening to multi-week lows. The Australian dollar, in particular, has seen a notable decline, dropping 0.6% to $0.7096, marking a three-week trough.
The New Zealand dollar, while steadying at $0.5720, has also faced downward pressure, losing almost 0.8% overnight to reach a 10-week low. Analysts are closely monitoring the Reserve Bank of New Zealand’s upcoming meeting on October 28, where a 25 basis point hike is expected, though the timing could be politically challenging given the general election in November.
The US Federal Reserve’s hawkish stance has further reinforced expectations for additional interest rate hikes in Australia and New Zealand. According to market projections, there is an 87% chance the Reserve Bank of Australia will raise its cash rate by 25 basis points at its next meeting on September 29, with a full 4.85% rate by February. The Reserve Bank of New Zealand is also expected to hike rates, with a 65% chance of a further increase to 3.0%.
Economic data released on Thursday showed that the Australian economy grew by a modest 0.2% in the second quarter, supported primarily by exports, with annual growth remaining robust at 2.6%. Analysts at Goldman Sachs noted that while the economy’s performance is positive, the RBNZ is more likely to delay further rate hikes until after the election, with an updated set of forecasts due in December.
Despite the economic growth, the consumer price index for the third quarter is expected to show a firm report, which could raise the possibility of a rate hike in October. The RBNZ is targeting inflation to slow to 3.9%, down from a 4.1% energy-driven surge in the March quarter.
The Australian dollar’s technical support levels are now around $0.7070 and $0.6922, while the New Zealand dollar’s support lies at $0.5672 and $0.5627. These levels will be crucial in determining the direction of both currencies in the coming weeks.
Analysts are closely watching the upcoming consumer price index report on October 22, which could provide key insights into inflation trends and influence monetary policy decisions in both countries.
The Reserve Bank of Australia and New Zealand are expected to continue their hawkish stance, with the Reserve Bank of Australia almost fully priced for a move to 4.85% by February, and the Reserve Bank of New Zealand having a 65% chance of a further hike to 3.0%.
