Australia, NZ dollars eye weekly losses, carry trades unwind
SYDNEY, July 19 (Reuters) -The Australian and New Zealand dollars are headed for hefty weekly losses on Friday as a high-level meeting in China failed to yield any forceful stimulus steps and the popular carry trades using the yen as funding currency unwound.
The U.S. dollar, meanwhile, attracted bids in a week that saw a sell-off in stocks and geopolitical uncertainties while rising bets of a Trump victory in the White House also added to momentum.
The Aussie AUD=D3 held at $0.6702, around the lowest in two weeks, having slipped through a key support level of $0.6715 overnight. It fell 1.2% this week, the first decline in six weeks, with support at 67 cents for now.
The kiwi dollar NZD=D3 eased 0.2% to $0.6031, after dropping 0.6% overnight to breach key support at the 200-day moving average of $0.6077. It is set for a weekly drop of 1.4%.
It has been weighed lower by expectations of three rate cuts this year from the Reserve Bank of New Zealand which could start as soon as next month, after a soft second quarter inflation report. 0#RBNZWATCH
The U.S. dollar looked to end the week on a steady footing even though dovish Fed comments led markets to fully price in a September rate cut and a greater amount of easing - about 63 basis points - for this year. FEDWATCH
The two antipodeans have also been hurt by the unwinding of the popular carry trade, where investors borrow the low-yielding yen to invest in currencies with higher yields. The yen has had wild swings on suspected intervention by Japanese officials in recent days. FRX/
The Aussie fell 1.5% this week to 105.50 yen AUDJPY=R, off a 33-year peak of 109.67 yen, while the kiwi NZDJPY=R tumbled 1.8% to 94.93 yen, the lowest in two months.
Falling commodity prices also weighed on the Aussie as the closely watched Chinese third plenum did not reveal any substantial stimulus measures that would comfort investors. Copper fell 3.3% overnight, while iron ore extended losses.
"As we expected, China's third plenum did not unveil economic stimulus. AUD/USD has trended lower all week. But it is not at the start of a downtrend in our view," said Josephe Capurso, head of international economics at the Commonwealth Bank of Australia.
"If the Australian Q2 2024 CPI is strong enough to encourage the Reserve Bank of Australia to increase the cash rate again, markets will price some risk of a follow‑up hike, and AUD/USD could hit $0.68 sooner than our forecasts."
A mixed jobs report on Thursday has nudged up the probability of a rate hike from the RBA in August to 20%, but much would depend on the Q2 CPI report due on July 31, where inflation is expected to edge higher.
Across the Tasman, New Zealand's two-year swap rates NZDSM3NB2Y= fell 16 basis points this week to 4.3275%, on top of a slide of 37 bps last week, as RBNZ looks set to cut rates.
Reporting by Stella Qiu; Editing by Jacqueline Wong
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