SYDNEY: The Australian and New Zealand dollars were on the defensive on Friday as concerns over US credit losses bruised risk sentiment, while also leading investors to wager on more aggressive Federal Reserve rate cuts.
A resulting dive in Treasury yields weighed on the greenback, but the Antipodeans failed to benefit as they are highly correlated to risk.
Instead, the Aussie lost ground to the safe-haven Japanese yen, while sliding to a six-month low on the Swiss franc.
The Aussie dipped 0.1% on the greenback to $0.6480, though it was holding above the recent two-month low of $0.6438.
Momentum is to the downside while it stays under $0.6535.
The kiwi dollar was pinned at $0.5725, after a bounce to $0.5755 overnight ran into selling.
A break of the recent six-month trough at $0.5684 would risk a retreat to at least $0.5600.
The Aussie was still smarting from a surprise jump in unemployment at home that led markets to ramp up bets for more rate cuts from the Reserve Bank of Australia.
Futures now imply around an 85% chance the RBA will cut the 3.60% cash rate by a quarter point at its meeting on November 4, against 50% early in the week.
A further move to 3.10% is also fully priced in. Analysts at JPMorgan cautioned that spikes in the unemployment data tend to get unwound in following months, so the RBA was unlikely to react to just one figure.
“We retain our view for the RBA to hold at the November meeting, but highlight the decision is finely balanced as it debates the conflicting signals from inflation and labour data,” they wrote in a note.
“There’s clearly a lot riding on the upcoming 3Q CPI release.”
The consumer price data are due on October 29 and a high reading for core inflation would lean heavily against a near-term easing.
New Zealand releases its CPI report next week and analysts assume inflation will pop up to 3.0%, from 2.7%, the top of the Reserve Bank of New Zealand’s target band of 1% to 3%.
Yet the central bank fully expected such a move when it slashed interest rates by 50 basis points to 2.5% earlier this month, confident that inflation would soon retreat.
“A reacceleration in imported inflation is driving the move higher, while domestic price pressures continue to cool, on balance,” said Mary Jo Vergara, an economist at Kiwibank.
“There is significant spare capacity still sloshing in the economy, keeping downward pressure on medium-term inflation,” she added.
“In 2026, inflation is set to slow below the mid-point of the target band.”
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