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The Australian and New Zealand dollars hovered near multi-month lows on Tuesday as rising U.S. Treasury yields boosted the greenback, while local bonds also suffered declines.
The Aussie dollar traded at $0.6655, its weakest in six weeks, and the New Zealand dollar fell to $0.6021, its lowest in two months.
U.S. Treasury yields surged overnight, reducing the market’s expectation for aggressive Federal Reserve easing in the near term.
Market participants now expect only around 40 basis points of U.S. rate cuts by year-end, implying less than two quarter-point reductions by November and December.
This shift has put pressure on the Aussie and Kiwi dollars, which tend to struggle when U.S. yields rise.
Picture: AUD/USD falls to 0.66628, with bearish momentum driven by concerns over Chinese economic weakness and strong US dollar performance, as seen on the VT Markets app.
The AUD/USD closed at 0.66628, reflecting a drop of 0.60% for the session. The price reached a high of 0.66661 and a low of 0.66508.
We’re seeing a clear downward trend as the pair faces consistent selling pressure. The moving averages (5, 10, 30-period) indicate a bearish alignment, with prices consistently below these averages.
The MACD (12, 26, 9) shows continued bearish momentum as the MACD line remains below the signal line, with negative histogram bars expanding, confirming the selling bias.
Joseph Capurso, head of international economics at the Commonwealth Bank of Australia, noted that despite the sharp moves, further steep declines in the AUD are not expected.
He pointed out that the global economic recovery, which continues to support the AUD/USD, remains intact. With no major economic data releases from Australia or China today, the Australian dollar is expected to track equity market trends.
Asian shares opened lower on Tuesday, following Wall Street’s losses, as higher yields pressured the lofty valuations of U.S. companies.
See also: Asian Currencies Fall on US Election Bets
The three-year Australian government bond futures fell 6 ticks to 96.15, the lowest since late July, while 10-year bond futures slid 10 ticks to 95.625, approaching their July 24 support level.
The market has pared back expectations for a rate cut from the Reserve Bank of Australia this year, with traders now pricing just a 25% chance of an easing. Meanwhile, the prospect of a first-rate cut by April 2024 is less than fully priced.
Across the Tasman Sea, traders see a higher likelihood that the Reserve Bank of New Zealand will implement a rate cut in November.
There is about a 25% chance of a 75 basis point reduction, with a half-point move now fully expected.
The RBNZ’s Assistant Governor Karen Silk mentioned that the central bank intends to continue reducing its balance sheet during the easing cycle, which she clarified does not indicate a change in monetary policy stance.
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