The Australian and New Zealand dollars gained strength on Thursday, buoyed by a recovery in global stock markets and growing expectations of a rate cut from the European Central Bank (ECB), which helped improve risk appetite.
Markets are mainly anticipating a 25 basis point cut from the ECB, with the main focus now on whether additional rate reductions will be hinted at for October or December.
Examining the charts, the AUD/JPY pair shows a solid recovery after falling to 93.588, bouncing back to 95.506 amid renewed market optimism. The Australian dollar’s rise mirrors a wider recovery in risk sentiment, with the pair’s rebound from its low coinciding with the Australian dollar’s stabilisation after reaching the 200-day moving average against the U.S. dollar.
The MACD indicator on the chart reveals a bullish crossover, indicating potential for continued upward momentum in the short term. The 5, 10, and 30-day moving averages also support this upward movement as the pair approaches the 95.5 resistance level.
Traders will closely watch global risk sentiment, as the Australian dollar often serves as a proxy for risk assets.
If market optimism persists, the pair may see further gains, but resistance around the 95.5 level could challenge this upward momentum. Should sentiment deteriorate, a pullback to the mid-94.00s is possible.
One of the main drivers of market sentiment was the slightly higher-than-anticipated U.S. core consumer price reading of 0.28%.
This dampened hopes for a substantial rate cut from the Federal Reserve at its next meeting, leading investors to scale back expectations for near-term easing by the Reserve Bank of Australia (RBA).
The chances of a rate cut in November have fallen to 27%, with December now seen as the more likely option at 68%, down from over 90% just a few weeks ago.
In New Zealand, August price data showed a modest 0.2% increase in food prices, while petrol, airfare, and accommodation costs declined. Consequently, Westpac lowered its inflation forecast for the September quarter from 1.1% to 0.9%. Economists now anticipate annual inflation to fall below 3% for the first time since 2021.
Ahead of the Reserve Bank of New Zealand (RBNZ) meeting on October 9, expectations lean towards a 25-basis-point rate cut, with a small chance of a more aggressive half-point reduction.
Both currencies are gaining strong support as markets expect easing inflation and potential central bank actions. Although the RBA and RBNZ remain cautious, traders are positioning for possible further gains in the Australian and New Zealand dollars, assuming global sentiment remains stable and inflation keeps declining.
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