The Australian and New Zealand dollars enjoyed robust gains on Wednesday, as a significant de-escalation in US-China tariff tensions brightened the global economic outlook and sparked a rebound in commodity prices.
A pullback in the US dollar further fueled the positive momentum for both currencies.
The Aussie dollar edged up 0.1% to $0.6480, following a 1.6% jump overnight that saw it move above its 200-day moving average of $0.6454. This rally brought it near a five-month high of $0.6514, which was hit last week.
Similarly, the New Zealand dollar (kiwi) also gained 0.1%, reaching $0.5942. It rallied 1.3% overnight to break back above its 200-day moving average of $0.5882, although it remains some distance from its six-month peak of $0.6029.
US-China Trade Truce Sparks Optimism
The US-China trade truce reached on Monday has significantly reduced the risk of a global recession, contributing to a brighter economic outlook. As a result, commodity prices have rebounded strongly, with iron ore reaching its highest level in over two weeks and copper climbing to six-week highs.
The easing of tariff tensions has also improved the outlook for interest rates in the US. Expectations for Federal Reserve rate cuts have been scaled back, with futures now pricing in just two quarter-point rate cuts this year. This change in expectations has provided further support for commodity-linked currencies like the Aussie and Kiwi.
Impact on the US Dollar and Commodity Prices
The US dollar’s pullback played in favor of the Australian and New Zealand dollars. According to Mansoor Mohi-uddin, Chief Economist at Bank of Singapore, “The USD has rallied sharply, but its long-term outlook remains bearish as global investors turn cautious after the Trump administration’s economic, foreign policy, and trade shocks.”
Meanwhile, commodity prices also showed strong gains, with iron ore and copper prices rising sharply. These commodities are heavily linked to the economic outlook of Australia and New Zealand, which explains the concurrent rise in their currencies.
Australian Economic Data and Interest Rate Outlook
Data showing that Australian wages increased 0.9% in the first quarter of the year has provided some additional support for the Aussie dollar. However, government pay rises for care workers largely drove this wage increase, suggesting that the uptick may be temporary.
Market expectations for interest rates remain firmly on the downside, with swaps fully pricing in a rate cut from the Reserve Bank of Australia (RBA) next week. In fact, a total easing of 80 basis points is expected by the end of the year.
Sean Langcake, head of macroeconomic forecasting at Oxford Economics Australia, stated, “Much of the strength in wages in Q1 has been driven by policy changes and will be temporary.”
Looking Ahead
The Aussie and Kiwi continue to benefit from the US-China trade truce and rebound in commodity prices, but challenges remain, especially with rate cuts on the horizon for both economies. As the US dollar faces longer-term pressure, the focus will shift to how global trade tensions, commodity prices, and economic policies impact the outlook for the Australian and New Zealand currencies moving forward.
