Australian and New Zealand Dollars Stay Steady While European Political Unrest Weighs on Euro

The Australian and New Zealand dollars held firm on Tuesday, supported by gains on European currencies after riots in France and as investors waited for updates on home interest rates. The Aussie stayed flat at 0.6977 US dollars, following a 0.5% jump overnight that pushed it away from a recent 15-week low of 0.68945 US dollars. Near-term resistance levels sit at 0.6993 and 0.7015 US dollars. It also bounced against the euro, sterling, and the Swiss franc as political worries hurt bonds across Europe. Meanwhile, the kiwi dollar stood at 0.5665 US dollars after going up 0.1% overnight. Major support for the kiwi sits at a recent 17-month low of 0.5566 US dollars, with resistance at 0.5675 and 0.5750 US dollars.

Upcoming Rate Decisions

The next domestic test for the Aussie is a speech by Reserve Bank of Australia Deputy Governor Andrew Hauser on Wednesday, where he will likely face questions about a possible fifth rate hike this year. Speaking on Monday, the RBA's head of financial markets noted that the job market might be cooling a bit faster than expected, but also pointed to the importance of upcoming third-quarter consumer price data due on October 28. Analysts see a risk that core inflation could rise by 1.0% in the quarter, keeping the annual pace at 3.6% and above the RBA target range of 2% to 3%. Westpac analysts expect core inflation to rise by 0.9% this quarter, placing annual inflation at 3.5% compared to the RBA forecast of 3.3%. Central bank officials will respond to these Q3 numbers as RBA Governor Michele Bullock and her team appear before lawmakers on the same day. Markets currently price in a one-in-three chance of a rate hike in the 4.60% cash rate in November, rising to 56% for December. Across the Tasman Sea, the Reserve Bank of New Zealand will announce on October 28 whether it is raising rates for the third time this year. Investors are pricing in an 89% chance of a quarter-point move to 3.0%. Markets also hint that rates could hit 3.75% or more next year, staying well above the RBNZ projection of 3.20%.

Context

Foreign exchange markets react quickly to political instability and changing interest rate expectations across different countries. When political troubles hit major European economies like France, investors often shift funds, which directly impacts the value of major global currencies like the Australian and New Zealand dollars.