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James Hyerczyk

The Australian and New Zealand Dollars are under pressure again on Thursday as risk sentiment continues to deteriorate, reducing the Aussie and Kiwi’s appeal as a higher-yielding asset. The proverbial “perfect storm” of negative factors is driving the price action.

The blame for the rapid decline in the Aussie and Kiwi can be placed on a number of factors including rising global COVID-19 infection rates, no evidence of any progress on a U.S. fiscal support bill and the usual volatility before a U.S. Presidential election.

At 06:58 GMT, the AUD/USD is trading .7031, down 0.0042 or -0.59% and the NZD/USD is at .6523, down 0.0028 or -0.43%.

Central bank comments this week have also helped fuel the selling. Dovish comments from a Reserve Bank of Australia (RBA) official and a dovish tone from the Reserve Bank of New Zealand (RBNZ) are also factors weighing on sentiment as Aussie investors adjust positions due to the possibility of a small rate cut in October. Meanwhile, Kiwi investors have become more convinced that the central bank will move to negative rates in early 2021.

Then there’s the U.S. Dollar, which has been on a tear, hitting its highest level since mid-July, since the September 16 Federal Reserve monetary policy announcements. The money that is leaving the Aussie and Kiwi is moving into the U.S. Dollar as investors look for a safe place to park their investment capital until the volatility settles down.

New Zealand:  Export Boom and Import Plunge Drives Big Trade Surplus

This month’s report showed that the COVID-19 pandemic continues to push New Zealand’s trade balance into positive territory. In fact, the country recorded its largest trade surplus since 2014 – the height of the last dairy boom.

However, today’s figures – a $1.3 billion annual goods trade surplus for the August 2020 year – reflected a rise in exports and a fall in imports over the past months, StatsNZ said. Imports were down by almost $1 billion for the month.

A similar trend was evident for the June quarter current account – which was recorded the target surplus since 1971.

There was little reaction to the news since the numbers were in line with expectations.


Short-Term Outlook

Deteriorating risk sentiment and dovish central bank outlooks are expected to weigh on the Aussie and Kiwi over the short-run.

For the Australian Dollar, economists at Westpac changed their view and are now expecting the RBA to lower interest rates to 0.10% from 0.25% at its next policy meeting on October 6. Earlier in the week, the tone for the Aussie was weakened after a senior central banker on Tuesday flagged the prospect of currency market intervention and negative interest rates.

In New Zealand, the Kiwi is under pressure after the RBNZ held its policy rate at 0.25%, but warned of job losses and business closures, which reinforced expectations it would move to negative interest rates in coming months.

For a look at all of today’s economic events, check out our economic calendar.

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