**AUD/USD & NZD/USD: Antipodean Rally Faces the Federal Reserve’s Constraints**
*Based on article by Manish Jaradi, with further analysis*
The Australian and New Zealand dollars have found strong upward momentum in recent weeks. Despite this, the rally appears to face significant headwinds as markets recalibrate their expectations regarding US Federal Reserve policy. The interplay between local drivers and global monetary policy continues to shape the climate for the AUD/USD and NZD/USD currency pairs. This article explores the catalysts behind the current surge, the limitations imposed by the Fed’s trajectory, and key technical and fundamental factors influencing future performance.
**1. Recent Surge in Antipodean Currencies**
Both the Australian dollar (AUD) and the New Zealand dollar (NZD) are often seen as proxies for risk appetite and global growth. Their value is tied closely to commodity prices, regional economic performance, and global financial conditions.
– Since late 2023, the AUD/USD and NZD/USD have both risen, with significant volatility reflecting shifting expectations for US monetary policy.
– The aussie and kiwi dollars have previously suffered amid China’s sluggish post-pandemic recovery and aggressive Fed rate hikes, but recent months have seen some relief.
– A softer US inflation print and growing optimism for a dovish Fed pivot have allowed these currencies to claw back losses.
**2. Federal Reserve Policy: The Defining External Factor**
While local economic metrics are important, it’s the stance of the US Federal Reserve that acts as the primary macro driver for these pairs.
– The US central bank raised rates aggressively in 2022-2023 to curb persistent inflation, driving two-year and ten-year bond yields sharply higher.
– With higher US returns, capital flooded into the dollar and put downward pressure on the AUD and NZD.
– The “Fed pause” narrative gained traction earlier in 2024, as US inflation data moderated and economic growth appeared to be cooling.
– Markets rapidly priced in multiple rate cuts for 2024, igniting a broad-based selloff in the US dollar and favoring high beta currencies like the AUD and NZD.
However, while the market leapt at dovish signals, Fed officials have pushed back against an overly optimistic outlook for policy easing:
– Chairman Jerome Powell and others have insisted that they require further evidence of subdued inflation before reducing rates.
– Sticky services inflation and a resilient labor market suggest it may take longer for cuts to materialize.
– As optimism for deep rate cuts fades, the US dollar has found support, weighing on recent AUD/USD and NZD/USD gains.
**3. Domestic Economic Backdrop: Australia and New Zealand**
Although the Fed’s policy provides the overall direction, local data add nuance to the picture.
*A. Australian Dollar Drivers:*
– Australia’s Gross Domestic Product (GDP) growth has slowed amid high interest rates, though it has managed to avoid a recession.
– The Reserve Bank of Australia (RBA) has maintained a cautious
Read more on AUD/USD trading.