Weaker global stock markets and higher Treasury yields also weighed on the Australian and New Zealand Dollar’s appeal as liquid proxies for risk appetite
The Australian and New Zealand Dollars fell on Friday amid renewed demand for the US Dollar as the recent selling spree driven by the view that Federal Reserve tightening moves were largely priced in abated, and as weaker risk appetite in financial markets led investors to shun riskier currencies like the Aussie and Kiwi.
On Friday, the AUD/USD settled at 0.7217, down 0.0063 or 0.87% and the NZD/USD finished at 0.6812, down 0.0052 or 0.76%. The Invesco CurrencyShares Australian Dollar Trust closed at $72.18, up $0.02 or 0.03%.
The Aussie and Kiwi still managed to post a gain for the week despite Fed Chair Jerome Powell saying that the US economy is ready for the start of tighter monetary policy and data showing the largest annual rise in inflation in nearly four decades.
Weaker global stock markets and higher Treasury yields also weighed on the Australian and New Zealand Dollar’s appeal as liquid proxies for risk appetite.
The Aussie and Kiwi were supported throughout the week as traders disregarded hawkish comments from Fed Chair Jerome Powell. However, investors weren’t buying the two currencies because of strengthening domestic fundamentals, but rather because of a massive liquidation of the US Dollar.
Federal Reserve Chairman Jerome Powell, with a seemingly clear path to a second term heading the central bank, declared Tuesday that the US economy is both healthy enough and in need of tighter monetary policy.
As part of his confirmation hearing before the US Senate Committee on Banking, Housing and Urban Affairs, Powell said he expects a series of interest rate hikes this year, along with other reductions in the extraordinary help the Fed has been providing during the pandemic era.
As we move through this year, if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year, he told committee members. At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy.
