The Australian and New Zealand dollars are headed for their biggest weekly gains in two months, as improving sentiment about China, bets that European rates have peaked and easing U.S. inflation helped the two currencies bounce off their 2023 lows.
The Aussie AUD=D3 rose 0.5% to a nine-session high of $0.6471 after activity data from China showed the recent flurry of support policies helped stabilise the economy. It is headed for a weekly gain of 1.5%, the largest since mid-July, with support firm at the 10-month trough of $0.6358 hit last week.
The kiwi dollar NZD=D3 edged 0.3% higher to $0.5930 and is up 0.8% for the week, also the biggest since mid-July. Resistance is at $0.5944, the top from Thursday, while support is at $0.5860.
Overnight, the European Central Bank raised interest rates by 25 basis points to a record high of 4%, and signalled that this hike could be its last. The euro EUR=EBS slumped to a four-month low, while markets moved to price in the tightening cycle is over and rate cuts would amount to 70 basis points by end-2024.
0#ECBWATCH It helped risk sentiment to rebound amid hopes that the global tightening cycle could be over. China's decision to cut the reserve requirement ratio for local banks on Thursday, unleashing 500 billion yuan in liquidity, also underpinned sentiment.
Iron ore futures that are on track for its biggest weekly gain since June, buoyed by the turnaround in China sentiment, also supported the Aussie.
"The trajectory of the AUD remains largely in the hands of China's economic performance and its policy response," said Carol Kong, a currency strategist at Commonwealth Bank of Australia. "For now, signs of stabilisation in China's economy may help to cap the downside in AUD."
Imre Speizer, a strategist at Westpac, also expects short-covering rallies in the Aussie at times but the trend into September is likely to remain downward.
"The Aussie has faced strong headwinds this month which seem unlikely to abate near term."
