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AUD/USD and NZD/USD Fundamental Daily Forecast – Under Pressure as Fed Rate Hikes Overtake RBA and RBNZ Increases

By on September 26, 2022 0

The Australian and New Zealand dollars closed lower on Friday as domestic bonds suffered heavy losses as investors rushed to catch the US Federal Reserve’s interest rate outlook. Both currencies were hit hard throughout the week after several major central banks, including the Fed and the Bank of England, raised benchmark rates, putting pressure on commodity prices and demand for oil. higher risk stocks.

On Friday, AUD/USD settled at 0.6536, down 0.0080 or -1.23% and NZD/USD ended at 0.5745, down 0.0083 or -1, 44%. Additionally, the Invesco CurrencyShares Australian Dollar Trust (FXA) ETF closed at $64.68, down $1.12 or -1.70%.

Aussie, Kiwi gets hit from all sides

The Aussie and Kiwi’s weakness over the weekend was fueled by expectations from Fed members for aggressive rate hikes and consistently high rates over the next year. The forecast that was released after an aggressive 75 basis point policy by the US central bank triggered a new wave of greenback buying that sent other assets on the run.

As a result, crude oil plunged as rate hikes deepened the global recession and demand concerns. Gold, which pays no income to hold it, also suffered as rising US Treasury yields reduced its investment appeal. This put further pressure on the commodity-linked Aussie and kiwi.

Tighter government debt yields weigh on Aussie and Kiwi

Rising US Treasury yields also put upward pressure on Australian and New Zealand government debt yields, driving down their respective prices. The spread between US government debt yields and those of Australia and New Zealand also narrowed, further weakening demand for the Australian and New Zealand dollars.

U.S. Treasury yields climbed on Friday and the yield on the 2-year Treasury note hit a new 15-year high as markets weighed the Federal Reserve’s latest rate hike and what it means for the economy ahead. the future. Meanwhile, the 10-year yield hit an 11-year high of 3.829%.

The rise in yields came as markets weighed the implications of the Federal Reserve’s latest policy decisions, which signal its willingness to accept a coming recession if it means an end to soaring inflation.

Look forward…

The Fed raised rates by 75 basis points expected last Wednesday and signaled a longer path for policy rates than expected by the markets.

It is now the turn of the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) to raise their rates next month.

The problem is that Australia and New Zealand have different levels of inflation, so their respective central banks can’t raise rates as much as the US Federal Reserve without risking huge damage to their economies. .

Markets largely priced in rate hikes of 50 basis points in October and 25 basis points in November and December for the RBA and RBNZ. With these rate hikes expected to be lower than the Fed’s, pressure will remain on AUD/USD and NZD/USD.