SINGAPORE- The Australian and New Zealand dollars struggled to regain their footing on Tuesday after China’s move to cut several key interest rates, while the yen rose ahead of Bank of Japan’s (BOJ) policy meeting at the end of the month.
The dollar index dipped slightly to 104.26.
The market reaction to US President Joe Biden’s decision to bow out of the election race over the weekend was muted, though there was some unwinding of the so-called Trump trade, which has seen the dollar and US Treasury yields ease a touch, while bitcoin’s rally hit a pause.
“I think certainly the US politics, as we get closer to the November election, will become a greater source of volatility for markets,” said NAB’s Catril.
“There’s still a lot of water to go through in terms of what the candidates have to offer and also how the polling may change as well. And then of course, getting a bit more clarity in terms of what the key policies will be and priorities will be, will be very important for markets.”
China on Monday surprised markets by cutting major short and long-term interest rates in its first such broad move since last August, signaling intent to boost growth in the world’s second-largest economy.
The two Antipodean currencies, often used as liquid proxies for the Chinese yuan, extended losses after slumping in the previous session in the wake of the news.
The Australian dollar fell to a three-week low of $0.6629, while the New Zealand dollar hit its weakest level since early May at $0.5966.
“For the Aussie and the kiwi, they tend to be reflecting a more liquid and free expression in terms of the realities currently facing the Chinese economy,” said Rodrigo Catril, senior FX strategist at National Australia Bank (NAB).
“The easing coming from the PBOC yesterday is not huge in terms of magnitude, but it does signal that willingness for the PBOC to support the economy alongside the fiscal side, and that probably plays to the view that there will be some tolerance for a little bit of weakness in CNY.”
