**Australian and New Zealand Dollars Under Pressure Amid Global Stock Market Rout**
*By Wayne Cole (Adapted and Expanded)*
On June 24, 2024, both the Australian and New Zealand dollars experienced notable declines in Asia-Pacific trading. This downturn followed a significant drop in global equities that triggered heightened demand for safe-haven assets and put additional pressure on risk-sensitive currencies like the AUD and NZD. With a challenging macroeconomic backdrop and increasing speculation around central bank policies, both the Australian and New Zealand dollars face growing headwinds.
## Market Context: Equities Slump, Risk Appetite Falters
Global markets kicked off the week on a sour note as major stock indices posted substantial losses. This equity sell-off was driven primarily by renewed concerns over global economic growth, stubborn inflation, and rising geopolitical tensions. As investors have grown more cautious, safe-haven currencies like the US dollar have attracted significant inflows, consequently weakening riskier currencies.
Key factors impacting sentiment include:
– **Concerns over the pace of global growth**: Fears of a slowdown in major economies such as the US, Germany, and China have intensified. Investors are now re-evaluating asset allocations, favoring those viewed as lower risk.
– **Inflation persistence**: Despite some signs of cooling inflation, key indicators have suggested that progress is slower than expected. This has further complicated the policy outlook for central banks, particularly in advanced economies.
– **Geopolitical uncertainty**: Ongoing tensions in Eastern Europe and the Asia-Pacific region continue to cast a shadow on the economic outlook, adding an extra layer of volatility to markets.
Against this uncertain backdrop, currencies closely linked to global risk sentiment—including the Australian and New Zealand dollars—are particularly exposed.
## Australian Dollar: Under Pressure at Day’s Low
The Australian dollar (AUD) slipped to its lowest level in over a week, trading around $0.6620 in afternoon Sydney trading on June 24. This marks a sharp reversal from a high of $0.6714 reached just a few days earlier.
**Several factors contributed to the Australian dollar’s weakness:**
– **Equity Rally Reversal:** The AUD tends to perform well during periods of strong equity markets and high risk tolerance. The sudden reversal in global stocks resulted in a swift retreat for the currency.
– **Commodity Prices:** Although Australia is a key exporter of commodities, recent price action has been mixed. Iron ore, a major export, has seen its price fall amid concerns about demand from China. While gold prices have remained elevated, they have not been sufficient to offset broader risk-off sentiment.
– **Central Bank Outlook:** Market participants are closely watching the Reserve Bank of Australia (RBA) for any signs of policy adjustment. The RBA left its cash rate unchanged at 4.35 percent at its most recent meeting, maintaining a cautious approach due to inflationary pressures and mixed economic data. Markets are now split on whether the next move will be a cut or extended
Read more on AUD/USD trading.