Australia, New Zealand Dollars Reach New Peaks Boosted by China – Reuters

By Rae Wee

SINGAPORE (Reuters) – The Australian and New Zealand dollars reached multi-month highs on Wednesday, while the yuan climbed to its strongest level in over a year, fueled by China’s aggressive stimulus efforts that bolstered risk appetite among investors.

The Australian dollar hit a peak of $0.6907 during the early Asian session, marking its highest value since February 2023. Simultaneously, the New Zealand dollar rose to a nine-month high of $0.6353, continuing the upward trend from the previous day.

However, the Australian dollar later modestly declined following data released on Wednesday that indicated domestic consumer prices in August slowed to a three-year low, with core inflation reaching its lowest point since early 2022. The currency was last seen at $0.6888, down 0.06%.

Globally, markets reacted positively to China’s recent announcement of a range of support measures, which included significant rate cuts and assistance for the stock market, encouraging investor confidence.

Aligned with its easing measures, the People’s Bank of China also reduced the cost of medium-term loans to banks from 2.30% to 2.00% on Wednesday.

The yuan rose to a 16-month high of 7.0012 per dollar, with its offshore counterpart reaching 6.9952 per dollar.

"Judging by the financial market reaction, those announcements were actually larger than what the market anticipated," noted Carol Kong, a currency strategist at Commonwealth Bank of Australia. She pointed out that these measures particularly benefitted currencies closely tied to the Chinese economy, such as the Australian and New Zealand dollars.

"The Kiwi dollar stood out among its G10 peers, likely due to market participants believing that the recent measures will support consumer demand, which is typically good for New Zealand’s dairy exports," she added.

In other developments, the British pound rose 0.1% to $1.3430, a level not seen since March 2022, supported by less aggressive expectations for rate cuts from the Bank of England compared to the Federal Reserve.

The U.S. dollar, a traditional safe-haven currency, faced pressure due to increased risk appetite, compounded by rising expectations of another substantial rate cut from the Federal Reserve in November.

Markets are currently pricing in a 58% probability of a 50-basis-point rate cut at the Fed’s next policy meeting, up from just 29% a week earlier. Recent data indicated an unexpected decline in U.S. consumer confidence for September, amid rising concerns over the labor market’s health.

"Consumers are feeling pessimistic about the economy," said economists at Wells Fargo in a report. "While there are several factors contributing to this growing pessimism, the moderating labor market remains a major concern."

The dollar was last positioned at 100.30 against a basket of currencies, hovering near a one-year low of 100.21.

The yen remained stable at 143.36 per dollar, while the euro edged up 0.08% to $1.1189, close to a 13-month high reached last month.