Australia, NZ dlrs on the ropes again as China looms large

By Wayne Cole

SYDNEY, May 12 (Reuters) – The Australian and New Zealand dollars touched fresh two-year lows on Thursday as worries about China’s slowing economy weighed on Asian stocks, while a survey on New Zealand inflation expectations was more restrained than rate hawks had wagered on.

The Aussie was struggling at $0.6922 AU=D3, after some wild swings saw it reach as high as $0.7054 overnight only to lurch back to a low of $0.6906.

The kiwi sagged to a trough of $0.6265 NOD=D3, having also failed to sustain a bounce to $0.6379 overnight. The loss of chart support at $0.6268 opens the way to at least $0.6230.

It was not helped by a Reserve Bank of New Zealand (RBNZ) survey showing longer term inflation expectations had stabilised after four quarters of sharp increases. nS9N2V502F

The outlook for two years ahead steadied at 3.29% and the five-year outlook edged up only slightly to 2.42%, which the RBNZ said was close to or in line with its 1-3% target range.

Investors had been looking for much larger increases and quickly trimmed wagers on a half-point rate hike from the RBNZ at its May 25 policy meeting – though it is still seen as more likely than not.

That saw two-year swap rates NZDSM3NB2Y= drop a sharp 13 basis points to 3.630%, and away from a recent seven-year peak of 3.980%.

For the Aussie, the main drag remains coronavirus lockdowns in China and their impact on commodity demand.

While there has been speculation of further policy stimulus from Beijing, an easing of the strict zero-COVID rules will be needed to improve sentiment.

“We are confident that once lockdowns ease, China’s economy will snap back because of pent‑up demand and policy support,” said Carol Kong, a senior currency strategy at CBA. “As a result, we believe AUD can recover strongly before year end once there are signs the lockdowns will end.”

“But if we are wrong that lockdowns will end well before October, AUD could fall by another 5 U.S. cents in coming months.”

There were no major Australian data out on Thursday but Friday see an appearance by Reserve Bank of Australia (RBA) Deputy Governor Michele Bullock.

She is taking part in a panel discussion on financial regulation but the subject of interest rates is likely to come up given the bank’s recent hike.

(Editing by Kim Coghill)

((Wayne.Cole@thomsonreuters.com; 612 9171 7144; Reuters Messaging: wayne.cole.thomsonreuters.com@reuters.net))