Key points:
The Australian and New Zealand dollars have held firm near their eight-month highs, driven by a weakening U.S. dollar and momentum from technical buyers aiming to push through chart resistance levels. The Australian dollar (AUDUSD) currently trades around $0.6793, just below its recent peak of $0.6812. As momentum builds, support is identified at $0.6759 and $0.6695, with the next major bull target set at $0.6871.
See: Aussie on the rise as seen on the VT Markets app.
Inflation data strengthens RBA’s no-cut stance, lowers November rate cut odds
This upward movement has been bolstered by the July inflation data, which exceeded market expectations, reinforcing the Reserve Bank of Australia’s (RBA) stance that a rate cut is unlikely this year. The market has responded by lowering the probability of a November rate cut to 42%, down from 56% before the data was released. However, the likelihood of a December rate cut remains high at 88%, as the U.S. Federal Reserve is expected to have cut rates twice by then.
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Market opinions among the four major Australian banks diverge on the timing of the RBA’s next move. The Commonwealth Bank of Australia (CBA) anticipates a rate cut as early as November, while Westpac and ANZ forecast February, and NAB projects a delay until May.
Weaker business investment adds downside risks to Australia’s economic growth
On Thursday, weaker-than-expected business investment data added some downside risks to Australia’s economic growth, with investment sliding 2.2% against an anticipated rise of 1.0%. This could weigh on the upcoming economic growth numbers, potentially influencing the RBA’s future decisions.
In contrast, the New Zealand dollar (NZDUSD) has surged 0.6% to a fresh peak of $0.6286, surpassing resistance at $0.6277. The next target is $0.6370, with support found at $0.6195. This momentum is partly driven by a substantial increase in business confidence, as reflected in a recent survey showing a 23-point jump to a decade high of +51 in August. Additionally, expected activity at individual firms climbed 21 points to +37, indicating a broad-based surge in optimism.
This turnaround in New Zealand’s business sentiment follows a rate cut by the Reserve Bank of New Zealand (RBNZ), which has signaled the start of a potential easing cycle.
Read: Top 4 assets to inflation-proof your portfolio
As these currencies continue to test higher levels, traders should remain cautious, keeping an eye on key support and resistance levels while considering the broader macroeconomic trends and central bank communications that could influence future movements.
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