Australia, NZ dollars grapple with risk aversion as US growth fears weigh
SYDNEY, Aug 2 (Reuters) -The Australian dollar was pinned near three-month lows on Friday as weak U.S. data fuelled fears of a sharp slowdown in the world's largest economy, sending investors to the embrace of the safe-haven yen and Swiss franc.
The Aussie held at $0.6501 AUD=D3, having fallen 0.5% overnight to just above a three-month low of $0.6480 hit on Wednesday. More support lies around $0.6466, with resistance at $0.6580.
For the week, it is down 0.6%, the third consecutive week of decline, partly due to the unwinding of the popular carry trade where investors borrowed the low-yielding yen to invest in higher-yield currencies.
Against the yen AUDJPY=R, the Aussie hit a six-month low of 96.59 yen on Friday, which brought the weekly loss to a hefty 3.4%. It also scaled a six-month trough on the Swiss franc, fetching 0.5654 francs AUDCHF=R.
The New Zealand dollar had better luck NZD=D3 and was holding at $0.5943, having finished Thursday little changed.
For the week, the kiwi is up 1.0%, largely due to gains against the Aussie as markets swung to price out any chance of an interest rate rise from the Reserve Bank of Australia following favourable inflation data.
Still, against the Japanese currency, it touched a 2023 low of 88.33 yen NZDJPY=R
Overnight, data showed U.S. manufacturing activity contracted at the fastest pace in eight months in July, while a gauge for employment fell sharply, indicating risk to the key payrolls report due on Friday are to the downside.
That slammed Wall Street and boosted bonds, prompting traders to bet there is even a 30% chance that the U.S. Federal Reserve could cut rates by 50 basis points in September as the economy slows. For all of 2024, more than three cuts have been priced in. FEDWATCH
"With the market firmly moving to a mantra that bad news is bad news for risky assets and sentiment, where swaps are pricing an element of more emergency cuts, poor U.S. job numbers will not be digested well at all," said Chris Weston, head of research at Pepperstone.
The shift has been echoed in Australia where investors are pricing in a 90% probability that the current 4.35% cash rate could be cut in December. Swaps also imply a total easing of 80 basis points by the end of 2025, more than doubling in a week. 0#RBAWATCH
Bonds, however, have had a good week due to the prospect of early rate cuts. Three-year bond futures YTTc1 rallied 7 ticks to 96.37, the highest since early April. That brought their weekly gain to a whopping 31 ticks, the biggest rise since July 2023.
Ten-year bonds YTCc1 also rose 6 ticks to a four-month top of 95.97, with the weekly gain at 28 ticks.
Reporting by Stella Qiu; Editing by Christopher Cushing
Related Assets
Latest News
Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.
All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.
Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.
