The Australian and New Zealand dollars were heading for hefty weekly losses on Friday as hawkish talk of higher U.S. interest rates lifted the U.S. dollar broadly, while worries over China's economy undermined commodities.
A sharp drop in the yuan CNH=D3 added to the pressure as the Aussie is often sold as a liquid proxy for the Chinese currency, reflecting China's position as the largest buyer of Australian resources.
That left the Aussie struggling at $0.6897 AUD=D3 , having shed a steep 3.1% for the week so far in what would be the worst performance in a year. Major support now looms at $0.6870 and a break would risk a re-test of its July trough of $0.6683.
The kiwi was down at $0.6237 NZD=D3 , having shed 3.35% for the week in the biggest loss since the onset of the pandemic in March 2020. A breach of key support around $0.6215 could see it retreat to at least $0.6150.
"Economic data and news we received this week have painted a bleak picture of the Chinese economy," warned Carol Kong, a senior currency strategist at CBA. "China is another major reason, alongside significant central bank tightening, why we expect a sharp slowdown in the global economy."
"The deteriorating Chinese and global growth outlook is a negative for AUD/USD and could see the pair re-test its July low near $0.67 in the coming month."
The slide in the kiwi came even after the Reserve Bank of New Zealand (RBNZ) hiked cash rates by 50 basis points to 3% and projected a peak for rates of at least 4%.
Markets have duly priced in a rate of 4%, while an inversion of the yield curve points to a serious risk of recession and eventual rate cuts by late 2023.
0#RBNZWATCH Australia's yield curve is still some way from inverting, thanks in part to the continued strength of the local labour market and consumer spending.
The Reserve Bank of Australia (RBA) is considered certain to raise its 1.85% cash rate in September, with the market leaning toward another move of 50 basis points, and to surpass 3.0% by Christmas.
0#RBAWATCH
