Australia and New Zealand Face Currency Crisis: Biggest Drop in Years

The Australian and the New Zealand dollar looks to have its biggest two-week decline in almost two years which could be blamed on risk-off sentiment, continuation of selling in the AUD/JPY pair, and weak easing from China.

Able to crawl up by a 0. 1% to $0. 6546 on Friday after retracting to a three-month low after a nine-session-long downfall. Nevertheless, it is set to close the week 2% down. This is down from 1. 5% in the prior week, making for the steepest two-week decrease since the week ended September 18, 2022. For a reversal, the AUD must move above the 200 today moving average of $ 0. 6589.

Likewise, the Kiwi dollar or the New Zealand dollar (NZD) is trading flat at $0. 5889 after hitting a three-month low of $0. 5873 as the currency continued it’s the slide for the sixth day in a row. This has come down by 2 percent this week following the previous 1. 8 percent reduction in the previous week.

Rodrigo Catril, a senior FX strategist at National Australia Bank said both currencies seem to be oversold in the technical analysis. He agreed that although the AUD, reached a low of $0. 6515, it still has the potential to bounce back.

The decline of both currencies has been established due to a selloff in the global stocks, the reversing yen carry trade as well as negative sentiment towards China which put pressure on commodities prices as well. Due to the close relations of trade with China, both currencies normally tend to move in synchrony with the Chinese yuan.

The Australian dollar stands at 100. 78 yen, but has depreciated by 6% in the last two weeks; the New Zealand dollar is at 90. 65 yen, 6. 2% down in two weeks. Although positive US economic data have not changed the market’s view on the upcoming Federal Reserve rate cut in September, the focus has now switched to the US personal consumption expenditures (PCE) price index. In Australia, investors are hovering over a possibility of 20 percent for a rate increase by the RBA in August depending on inflation data. At the same time, New Zealand markets expect an early and deep-rate cut with a 44% chance of a cut in August and more cuts till 2025.