AUD/USD and NZD/USD price action: both reverse gains amid US dollar strength
AUD/USD and NZD/USD face pressure as a strong US dollar rebounds, fueled by US economic resilience and tariff threats on BRICS. Australia's rate cut delays and New Zealand's further cuts hint at potential currency shifts.
Key points
- AUD/USD falls to 0.6464, ending a three-day rise
- NZD/USD drops to 0.5880 amid US dollar strength
- RBA maintains high interest rates due to inflation
- RBNZ cuts cash rate by 50bps, signaling further easing
- US dollar index rises nearly 1% to 106.7
AUD/USD drops below 0.6500
The Australian dollar dropped to 0.6464 per US dollar on Monday, ending a three-day rise on a downtrend, as the US dollar gained strength due to expectations of robust US economic performance. The greenback's rise and the aussie’s pullback was also fueled by Trump’s threat of imposing 100% tariffs on BRICS countries if they promote a currency rivaling the dollar. In Australia, the reaction to stronger-than-expected retail sales in October suggests that interest rate cuts may be postponed. Last week, Reserve Bank of Australia (RBA) Governor Michele Bullock indicated that Australia's core inflation remains too high for near-term rate cuts, highlighting that restrictive policies would continue until inflation aligns with targets.
AUD/USD price history
NZD/USD drops below 0.5900
The New Zealand dollar fell to 0.5880 on Monday, on a bearish trend from the previous session and under the pressure of a US dollar rebound. This comes after recent US economic resilience and Trump’s threat of 100% tariffs on BRICS nations that support an alternative to the US dollar as the world’s reserve currency. As for monetary policy, the Reserve Bank of New Zealand (RBNZ) cut its interest rate by a large 50bps to 4.25% last week in response to recent mild inflation and slow economic activity. The RNBZ also signaled potential further rate cuts next year, potentially by a further 50bps with respect to economic conditions.
NZD/USD price history
A strong US dollar and its impact
The US dollar index rose nearly 1% to 106.7 on Monday, recovering from a 1.6% drop last week, its first decline in nine weeks. Traders are focused on upcoming economic data, including PMIs, JOLTs, and the jobs report, to gauge the US economic outlook and the Federal Reserve's December plans. The ISM Manufacturing PMI exceeded expectations, indicating a milder contraction in manufacturing. Politically, Donald Trump is pressuring BRICS to avoid creating or backing a new currency to replace the US dollar, threatening a 100% tariff otherwise on countries like China, amid other European countries.
What’s next for AUD/USD and NZD/USD?
When it comes to US dollar strength in the short-term, so long as the Dollar Index’s strength remains, it is likely we will see continued domination in both forex pairs from the dollar. However, Trump’s foreign economic policy and its effects on foreign exports plays a role in the dollar’s future. If his future tariff policies prevail, there is possibility for both negative and positive consequences for the dollar: potential strength from increased US economic activity, and potential weakness from any resulting trade wars or retaliatory tariffs. As for AUD/USD, after Governor Bullock’s remarks regarding inflation, there is strong potential for continued weakness until inflation rate returns to its target. However, there is possibility of renewed strength in the aussie because of interest rate cuts being postponed until further notice. For NZD/USD, after its most recent rate cuts and its signal for future rate cuts, the kiwi may face further weakness in the near future. However, time will tell as Trump’s foreign policy and any market upsets can cause changes in currency patterns.
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