Australian dollar hit fresh nine-month lows, kiwi helped by hawkish RBNZ

Aug 16, 202303:52 UTC

The Australian and New Zealand dollars plumbed fresh nine-month lows on Wednesday as investors still smarted from dismal economic data from China, although the kiwi later rebounded on a slightly hawkish outlook for local rates.

The Aussie AUDUSD fell as far as 0.4% to $0.6428, the lowest since November 10. It soon found buyers at a major support level of $0.6450 and was last at $0.6452. Any break there would take it to levels not seen since October.

The kiwi dollar NZDUSD reversed earlier loss to be 0.2% higher at $0.5966, after the Reserve Bank of New Zealand held the interest rates steady at 5.5% as expected, but signalled rates may need to stay higher for longer.

The RBNZ now sees a risk the cash rate could peak higher than the current level if activity and inflation measures do not slow as much as expected, although Governor Adrian Orr did sound a bit dovish by saying the bank's cash rate projections are not forward guidance.

The benchmark two-year interest rate swaps (NZDSM3NB2Y=) bounced off an earlier low to be up 2 basis points at 5.5050%, and markets now imply a 30% chance that the RBNZ could deliver another hike in November. (0#RBNZWATCH)

"The short-term bias in the OCR track implies that the choices for the MPC (Monetary Policy Committee) in future meetings will range between no change and a further OCR increase," said Kelly Eckhold, chief economist at Westpac NZ.

"Westpac continues to expect a 25-basis point increase in the OCR at the November Monetary Policy Statement."

Economists at Capital Economics say they are less confident about their forecast that the bank would pivot to an easing cycle by the first quarter of 2024, although they still see rates have peaked.

Elsewhere, risk-off mood persisted after soft China data and strong U.S. retail sales sparking renewed concerns about U.S. interest rate hikes.

Australia's three-year government bond yield (AU3YT=RR) eased 5 basis points to 3.913%, while 10-year yields AU10Y fell 4 bps to 4.228%.