Australia, New Zealand Dollars reeling as China worries rock commodities – Markets

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SYDNEY: The Australian and New Zealand dollars were deep under water on Tuesday as concerns over the impact of coronavirus lockdowns on Chinese demand sent commodity prices and risky trades in general plummeting.

The Aussie was sitting at $0.7185, after hitting a two-month low at $0.7135 overnight when a breakout of its 200-day moving average at $0.7294 triggered a stop-loss sell-off. loss.

It is now down 2.6% in just two sessions and risks a new retracement to support around $0.7086/95. The Kiwi Dollar was huddled at $0.6623, after hitting a three-month low of $0.6584 overnight. It is down 4.5% for the month so far and is in danger of breaking its January low of $0.6531.

Both have been plagued by sharp falls in commodity prices, with iron ore – Australia’s biggest export earner – particularly hard hit, with China accounting for 70-75% of global iron ore imports. iron and steel ingredient.

Australia and New Zealand dollars lagged in the race for higher rates

“Iron ore demand is facing immediate headwinds due to possible lockdown extensions in Tangshan,” noted ABC analyst Vivek Dhar. “The city is a major steel center, accounting for around 14% of China’s crude steel output.”

A sharp decline in the Chinese yuan added to the pressure as investors often use antipodean currencies as liquid substitutes for the Asian currency.

The Aussie will also be tested by local data when consumer prices for the first quarter are released on Wednesday as markets brace for a scorching report.

The Reserve Bank of Australia’s (RBA) preferred measure of underlying inflation – the trimmed average – is expected to jump 1.2% in the quarter, bringing annual inflation to 3.4%.

It would be the highest reading since mid-2009 and lift inflation above the RBA’s 2%-3% target range, ending years of underestimation and making it hard to justify the hold. interest rates at emergency lows of 0.1%.

“At the RBA meeting on May 3, we expect the board to adopt a clear tightening bias in anticipation of a decision in June,” said Westpac chief economist Bill Evans, who now expects the central bank to rise to 0.5% in June, rather than 0.25%.

For some time now, futures have been more than fully priced for a move to 0.25% in June and are now on course for a full upside to 0.5%.

The market also sees rates hitting at least 2.25% by the end of the year, which would be one of the most aggressive tightening cycles on record if it occurs.

Evans sees rates at 1.5% by Christmas and peaking at 2% by the middle of next year.

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