1. Australia dollar set for steep monthly loss, kiwi skids

Australia dollar set for steep monthly loss, kiwi skids

The Australian dollar struggled near six-year lows on Friday as falling commodity prices, jitters about China and rising speculation of a U.S. interest rate hike set the stage for the largest monthly fall since October last year.

By: | Published: July 31, 2015 8:53 AM

The Australian dollar struggled near six-year lows on Friday as  falling commodity prices, jitters about China and rising speculation of a U.S. interest rate hike set the stage for the largest monthly fall since October last year.

The Australian dollar dipped to $0.7294, having slipped as far as $0.7255 on Thursday, its weakest since 2009. It has tumbled 5.4 percent in July and more than 20 cents in the last 12 months.

The latest blow came after economic growth data in the United States reinforced expectations that the Federal Reserve was on track to raise interest rates this year.

In contrast, the Reserve Bank of Australia (RBA) is widely seen holding rates at a record low of 2 percent at its policy meeting on Aug 4.

Markets will be scrutinising the policy statement for the central bank’s assessment of the domestic economy.

“There is a risk it could be more positive and it could buy time for the RBA to remain on hold,” said David de Garis, a senior economist at National Australia Bank.

Focus will also be on whether the central bank will keep up its comments about the necessity of a lower Australian dollar.

“I suspect they will stick to their guns as they don’t want the Aussie to be bid up,” said De Garis.

Key support was found at $0.7250, then $0.7204 and $0.7184 which are major Fibonacci retracement levels.

The Aussie had a better week against the euro which fell to A$1.4986 in a third consecutive session of losses. The euro touched on Tuesday its highest this year at A$1.5254 but was down 0.6 percent for the week.

The New Zealand dollar was smacked lower to $0.6575 after a survey showed business sentiment at a six-year low, boosting the case for more rate cuts.

The kiwi had touched a two-week high of $0.6739 earlier in the week when the head of the country’s central bank played down speculation there could be further substantial falls in interest rates, though they were still likely to ease again.

“The market seems refocused on the broader fundamentals, that is the RBNZ remains in easing mode as the US Fed is inching toward its first rate hike,” said BNZ senior strategist Kimberly Martin.

Adding to the pain, a survey from ANZ Bank showed business sentiment slumping to its lowest in six years, when the economy was in the midst of recession.

“The economy is softening, but far from running up the white flag in the growth stakes,” said ANZ chief economist Cameron Bagrie, adding that lower interest rates and exchange rate would help.

Next week has considerable event risk with Fonterra’s dairy auction and board meeting likely to deliver a hit to farmer incomes.

Near-term kiwi support is around $0.6550 with resistance at $0.6670. It has shed 2.8 percent in July for a third month of losses.

New Zealand government bond yields were as much as 7.5 basis points lower at the long end of the curve.

Australian government bond futures rose, with the three-year bond contract up 3 ticks at 98.080. The 10-year contract  shot up 7.5 ticks to 97.1950, leading to a bullish flattening of the curve.

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