On Wednesday, the Australian and New Zealand dollars faced notable declines amid growing skepticism regarding the effectiveness of stimulus measures from their principal trading partner, China. At the same time, the U.S. dollar hovered near two-month highs against major currencies, buoyed by expectations of gradual interest rate cuts in the United States.
The New Zealand dollar was particularly affected by recent data indicating a slowdown in inflation, raising concerns that the Reserve Bank of New Zealand (RBNZ) may implement aggressive easing measures.
The Australian dollar fell as much as 0.51% to $0.6669, reaching its lowest level since September 12, before slightly recovering to trade down 0.38% at $0.6678 by 0133 GMT. The New Zealand dollar similarly dropped, plummeting by as much as 0.69% to $0.6041—its weakest point since August 19—before stabilizing at 0.53% lower at $0.6051.
Ray Attrill, head of FX strategy at National Australia Bank, remarked, “There’s definitely been some building skepticism about China’s real commitment to the kind of fiscal support that would be seen as really cathartic,” contributing to the recent declines in both currencies.
Chinese stocks experienced a steep drop on Tuesday, continuing a downward trend that followed a previous rally fueled by unfulfilled hopes for stimulus. Over the weekend, China’s finance ministry announced plans to increase borrowing, although specifics on timing and amounts were not provided. A press conference is scheduled for Thursday to discuss efforts aimed at promoting the “steady and healthy” development of the property sector.
In New Zealand, speculation is mounting that the next RBNZ rate cut could be as high as 75 basis points. Attrill noted, “Today’s CPI numbers arguably played with the grain of that view for an outsized cut.” Statistics New Zealand reported that annual inflation fell to 2.2% in the third quarter, marking the first time it has returned to the RBNZ’s target range of 1% to 3% since March 2021.
The U.S. dollar index, which measures the currency against six major rivals, remained steady at 103.25, holding close to Monday’s peak of 103.61, a level not seen since August 8. Recent strong data reflecting a resilient U.S. economy, combined with inflation figures that slightly exceeded expectations in September, have led traders to reassess predictions for aggressive Federal Reserve easing.
Currently, traders estimate a 94% likelihood of a 25 basis-point cut at the Federal Reserve’s next policy meeting on November 7, with around 6% probability of no change. This represents a significant shift from a month ago, when there was a 27% chance of a more substantial 50 basis-point reduction.
The dollar was largely unchanged at 149.135 yen, remaining close to Monday’s high of 149.98 yen, the strongest level since August 1. The euro edged down 0.05% to $1.08875, after dipping to $1.0882 earlier, matching Tuesday’s low and marking the weakest level since August 8. The European Central Bank is set to announce a policy decision on Thursday, with markets almost certain of a quarter-point interest rate cut.
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