The Australian dollar climbed to $0.6417, building on an overnight gain of 0.6% that propelled it to a four-month peak of $0.6436. This upward momentum saw the Aussie decisively breach a key resistance level at $0.6409, which now serves as the immediate support.
Meanwhile, the New Zealand dollar displayed remarkable strength, trading at $0.5998 after a robust 1.1% overnight increase that took it to $0.6019, its highest point since early November. The kiwi now faces resistance at $0.6037, with the 200-day moving average at $0.5883 providing a support level.
President Trump's intensified attacks on Fed Chair Jerome Powell on Monday, labeling him a "major loser" and demanding immediate interest rate cuts, triggered concerns about the central bank's independence. This rhetoric sent the U.S. dollar to a three-year low and caused a downturn in Wall Street.
Richard Yetsenga, chief economist at ANZ Group, commented on the situation, stating, "Unfortunately for the U.S., the way the administration has dealt with these issues means this kind of triple threat facing U.S. assets – the weakness in equities, the weakness in fixed income and the weakness in the dollar - look like they’re going to continue for the near-term."
Tony Sycamore, an analyst at IG, suggested that if the Australian dollar can maintain a break above its 200-day moving average of $0.6474, it would strongly indicate the completion of a V-shaped bottom, potentially paving the way for a rally towards the 68/69 cent range.
Domestically, both Australia and New Zealand are experiencing a quiet, holiday-shortened week with minimal economic data releases or significant events scheduled. Consequently, the movements of their respective currencies are largely dictated by the ebb and flow of the U.S. dollar.
Against the kiwi, the Australian dollar hovered just above a one-year low at NZ$1.0697. This partly reflects market expectations of more aggressive monetary easing by the Reserve Bank of Australia (RBA) as U.S. tariffs cast a shadow over the global economic outlook.
Current market pricing, based on swaps, fully anticipates a 25 basis point rate cut by the RBA at its upcoming meeting in May, with a roughly 20% probability of a more substantial 50 basis point reduction. Markets have priced in a total easing of 125 basis points by the RBA throughout the remainder of the year.
Conversely, markets fully expect the Reserve Bank of New Zealand (RBNZ) to implement a 25 basis point cut to its 3.5% cash rate in May and further reduce it to 2.75% by the end of the year.
The diverging monetary policy expectations, coupled with the broader weakening of the U.S. dollar due to political pressures, have created a favorable environment for the Australian and New Zealand currencies in the current market landscape.