Aussie Dollar Has Been Under Pressure as RBA Increases Cash Rates

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The Australian dollar had a volatile week, with bond yields falling to their lowest levels in eight months as investors bet on the possibility of an interest rate cut due to ongoing economic challenges and global banking instability.

On March 17, the Aussie was stalled at its current level of $0.6680, unable to break through resistance at the 200-day moving average of $0.6758. This meant that the currency was slightly down for the week and within striking distance of chart support at around $0.6650.

Meanwhile, the New Zealand dollar remained steady at $0.6245, having encountered a wall at $0.6295.

A sharp shift in market expectations about the Reserve Bank of Australia (RBA) has put pressure on the currency and caused the market to nearly wholly discount the possibility of a further increase in the current cash rate of 3.60 per cent.

“We think the RBA is done with rate rises, at least for now. We see the RBA prioritising a soft economic landing, even if this means above-target inflation for a while,” said Paul Bloxham, head of Australian economics at HSBC.

“However, with inflation expected to be high for some time, we do not expect cuts anytime soon.”

Even with the possibility of a move as early as September, the market is completely priced for a quarter-point decrease in December.

The next week’s retail sales and monthly inflation numbers could significantly impact. Analyst predictions often indicate softer values for both.

The Reserve Bank of New Zealand (RBNZ) still seems too anxious about inflation to halt its cycle of rate increases, despite the dramatic decline in New Zealand bond yields.

Rates are expected to rise by another quarter point to 5.0 per cent in April, although analysts do not believe they will reach the forecast peak of 5.5 per cent set by the RBNZ.

With uncertainty still reigning in global markets, investors will closely watch these two currencies for further signs of movement in the days ahead.

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