Australian Dollar Weaker Against Other Risk-Related Currencies on Tuesday

On Tuesday, the Australian dollar (AUD) recovered from recent severe declines by gaining ground against the Chinese yuan (CNY), while the New Zealand dollar (NZD) is expected to experience an additional boost from its central bank’s likely first-ever major rate hike.

The Australian dollar, which is frequently used as a liquid substitute for the Chinese currency, increased by 0.2% to $0.6620 against the dollar (USD) after falling by 1% overnight to $0.6585, its lowest level in more than a week, due to worries that COVID curbs would be spread throughout China as infections increased.

Above 66 cents, the single currency seems to have found some stability. After experiencing significant selling the day before, the offshore Chinese yuan gained 0.3% against the dollar (USD).

It was a really close call, though. 15 out of 23 analysts surveyed by Reuters believe the Reserve Bank of Australia (RBA) will increase the cash rate by 75 basis points. However, the rest of the poll predicted an increase of 50 basis points.

Analysts at Barclays noted: “Recent NZDUSD gains and NZD’s relative outperformance versus the AUD are at risk this week if the RBNZ disappoints relative to market expectations of a hawkish outcome.” They added:

“AUDUSD is likely to remain volatile and capped around 0.6800, tracking risk sentiment. News flow from China could also exert an influence on the AUD, especially if there are renewed signs of tightening in mobility as cases spread.”

Australian Dollar Traders Monitoring Cues From RBA

As the forecast for local interest rates differed, the Australian dollar on Tuesday fell to an 8-month low against the New Zealand dollar (AUD/NZD) at NZ$1.0780.

Tuesday night’s dinner event will feature Reserve Bank of Australia Governor Philip Lowe’s address on “Price Stability, the Supply Side, and Prosperity.” The markets will be watching for any indications of a halt to interest rate increases in the approaching policy meetings.