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James Hyerczyk

Sellers continue to dominate the Australian and New Zealand Dollars on Wednesday with both currencies trading at multi-year lows. The Aussie is poking through its most recent bottom from August at .6677. Its longer-term charts show the next major support levels come in at .6247 and .6008 so to say it is weak is an understatement. Meanwhile, the Kiwi traded as low as .6204 on Tuesday, taking out the August 24, 2015 bottom at .6207 in the process.

At 09:58 GMT, the AUD/USD is trading .6682, down 0.0022 or -0.33% and the NZD/USD is at .6232, down 0.0010 or -0.16%.

Driving both currencies lower are expectations of further rate cuts by the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ).

On Tuesday, RBA cut its cash rate by 25 basis points to a record low of 0.75 percent. In his comments after the announcement, RBA Governor Philip Lowe said a long period of low interest rates would be needed to achieve full employment and reach the bank’s inflation target.

“The reference of full employment and inflation represented a change of emphasis from the central bank and a stronger commitment that it would do whatever it took to meet its aims,” said Ray Attrill, head of foreign exchange strategy at National Australia Bank.

After the RBA decision, financial market traders upped their bets for another quarter-point rate cut to the cash rate. “Once we get to a half a percentage point, then unconventional measures are going to be firmly on the radar.”

One unconventional measure is quantitative easing. It’s also a bearish strategy. However, this isn’t going to bother the RBA because it would like to weaken the Australian Dollar. In its monetary policy statement on Tuesday, the central bank held back from any explicit reference to the level of the currency in its statement, but strategists say the exchange rate is bound to be a priority when the RBA makes any decision on monetary policy.

Daily Forecast

The RBA and RBNZ would like to see its respective currencies lower, but so does the Federal Reserve. Officials were happy just 24 hours ago when the U.S. financial markets were indicating the Fed would pass on a rate cut at the end of October. But that was before the release of the disastrous ISM US Manufacturing report on Tuesday morning U.S. time.

With traders fearing a slowdown in the global economy, Treasury investors are now upping the chances of a Fed rate cut at the end of October. The RBA and RBNZ do not want to be the odd one out on interest rates so their likely to cut again soon after the Fed. This is the primary reason for the weakness in the AUD/USD and NZD/USD on Wednesday.

The key report today is the ADP Non-Farm Employment Change. It is expected to show the private sector added 140K jobs in September. A miss to the downside will increase the chances of a Fed rate cut and this could put further pressure on the Aussie and Kiwi because it means additional rate cuts by the RBA and RBNZ are coming.

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