The Australian and New Zealand dollars found some breathing room on [day] as the US dollar took a pause from its recent rally. But the calm may be temporary: traders are still digesting a more hawkish-than-expected read of the Reserve Bank of Australia's (RBA) latest meeting minutes, and the currencies remain pinned near levels that could determine their next move.
Why the US dollar pause matters
For months, the greenback has been the star of the currency market, boosted by higher US interest rates that make dollar-denominated assets more attractive. That strength has weighed heavily on currencies like the Australian dollar (AUD) and New Zealand dollar (NZD), which have been sliding as investors flock to the US.
When the US dollar pauses, as it did recently, it gives other currencies a chance to steady. But the relief is often short-lived if the underlying drivers—like the Federal Reserve's rate outlook—haven't changed. As traders await US inflation data and Fed signals, the direction of the dollar remains the key swing factor for the Aussie and kiwi.
Support levels: the floors traders watch
In currency markets, traders often look at "support" levels—price points where a currency has historically found buyers, preventing it from falling further. For the Aussie, those levels are around $0.6933 and $0.6904 against the US dollar, according to Reuters. If the AUD/USD pair breaks below these, it could trigger further selling. If it holds, it might signal a short-term bottom.
The New Zealand dollar, meanwhile, is hovering near a 17-month low, a sign of how much pressure it's been under. The kiwi has been hit by a combination of a strong US dollar and domestic economic concerns, including slowing growth and falling commodity prices.
The RBA's hawkish turn
The RBA's latest meeting minutes, released this week, showed a more hawkish tone than many had expected. The central bank raised its policy rate to 4.6%—a level not seen in over a decade—and the minutes repeatedly flagged the possibility of further hikes if inflation doesn't cool fast enough.
Markets are now pricing in roughly a 30% chance of another rate hike at the RBA's next meeting on November 3rd. That's a significant shift from earlier expectations that the RBA might be done with tightening. As the Aussie dollar steadied as the RBA signalled a possible hike to 4.60%, the currency's fate is now tied to how aggressively the central bank acts.
For everyday investors, a higher RBA rate could mean higher borrowing costs in Australia, but it also makes the Aussie more attractive to yield-seeking investors. However, the currency's recent weakness suggests that the US dollar's pull is still stronger.
What this means for investors
For investors holding Australian or New Zealand assets, the currency's direction matters. A weaker Aussie or kiwi can erode the returns of overseas investments when converted back to local currency. Conversely, a stronger currency can boost those returns.
The RBA's hawkish stance could support the Aussie in the medium term, but only if the US dollar's rally fades. As the dollar eases and Treasury yields slip ahead of US inflation data, there's a chance the greenback's strength could moderate. But if US inflation remains hot, the Fed could keep rates higher for longer, keeping the dollar bid and the Aussie and kiwi under pressure.
For those with exposure to these currencies, the key levels to watch are the support zones mentioned above. A break below could signal more downside, while a hold could offer a short-term bounce. But as always, currency markets are unpredictable, and the RBA's next move—and the Fed's—will be the ultimate guide.
The broader picture
The Aussie and kiwi are also sensitive to global growth prospects, particularly in China, a major trading partner for both countries. Recent data from China has been mixed, and any slowdown could weigh on commodity prices and, in turn, on the Australian and New Zealand dollars.
Meanwhile, the Westpac leading index signals slow Australian growth ahead, adding to concerns about the domestic economy. If growth falters, the RBA might be less inclined to hike, which could weaken the Aussie further.
For now, traders are in a wait-and-see mode, watching both the RBA's next move and the US dollar's trajectory. The next few weeks could be pivotal for both currencies.
