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SYDNEY – The Australian and New Zealand dollars rose on Monday as global stock markets began the week in a stable mood in the hope that a recent rate cut in China would stave off a massive economic downturn for importers.
There was also some relief that the Australian federal election was a clear winner, with the center-left Labor Party close to winning a majority in parliament.
Aussie rose 0.8% to 0.7090, taking it further away from its recent two-year True at 68 0.6829. Resistance is around $ 0.7142, with 0.7005 support.
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The Kiwi dollar bounced 0.9% to a two-week high of 0.6450, setting some distance between its recent low of 6 0.6219. The next major resistance level is at $ 0.6525.
Australian stocks have strengthened and bonds have remained stable as markets generally expect the new government to be financially responsible.
Rating agency S&P Global said the country’s fundamentals were right and expected the budget deficit to shrink faster than expected thanks to higher prices for Australian resource exports.
“We expect Australia’s economic recovery and commodity prices to improve financial results faster than expected in the March 2022 budget,” the agency said. “Furthermore, inflationary pressures will push nominal GDP and taxes higher.”
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“Rising debt levels do not currently pose a risk to our AAA rating on Australia.”
In the market, the Reserve Bank of Australia (RBA) continued to place bets by 0.6% in June, by a quarter point. By the end of the year, the rate is now around 2.5%, up from 3.0% a few weeks ago.
The Reserve Bank of New Zealand (RBNZ) is already well ahead in its tightening cycle and is widely expected to raise rates by another half point to 2.0% this Wednesday.
Jared Kerr, chief economist at Kiwibank, estimates that the RBNZ will continue its projected path to calculate the half-point growth and raise the terminal rate from 3.35% to about 3.5%.
“After Wednesday, we expect the RBNZ to slow down a bit and the 25bp Hike to return to a tougher zone,” he added. “We expect the cash rate to rise to 3% by November and break there.”
He argues that while the real estate market is cooling rapidly and the risk of a recession is increasing, while investors are still betting on something as high as 4.0%, 3% could be the top of the cycle. (Reporting by Wayne Cole in Sydney; Edited by Sonali Desai)