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Australia and New Zealand dollars retreat as risk sentiment suffers

SYDNEY, Feb 3 (Reuters) – The Australian and New Zealand dollars fell on Thursday as global stock markets were swept by a $200 billion rout from social media giant Meta (FB.O), underscoring the strong currency correlation with risk sentiment.

The Aussie eased to find support at $0.7120, after hitting a 1-week high at $0.7160 overnight. Resistance is still seen around $0.7180, with more support at $0.7075.

The Kiwi Dollar fell to $0.6622, after briefly touching $0.6661 overnight. It was still well above the recent 16-month low of $0.6531, but below a retracement target at $0.6710.

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Resource-rich currencies are seen as proxies for global growth and risk in general, and often follow the daily swings of US stock futures rather than national fundamentals.

That’s one of the reasons the Aussie failed to capitalize on Wednesday’s concession from the Reserve Bank of Australia (RBA) that interest rates may well rise this year, rather than in 2023. read more

RBA Governor Philip Lowe also hinted the bank could start trimming its balance sheet as early as May, although an actual hike wasn’t likely until later in the year.

“We now expect the RBA to start quantitative tightening (QT) as early as the ‘review’ at its May meeting,” said UBS economist George Tharenou.

“We still expect the first upside to 0.25% in the fourth quarter, but the risk increases for August,” he added, noting that Lowe had pointed out that the bank was looking at a broader set of wage indicators. only the official wage price index.

The index is only released quarterly and tends to move only slowly, while other more timely indicators pointed to a faster recovery in labor costs.

For its part, the kiwi received indirect support from the latest ANZ Commodity Price Index, which jumped 1.9% in local currency to a record high in January.

Prices for dairy, New Zealand’s biggest export, soared 2.5% to a record high as strong demand met limited supply. This should be a boon to export earnings and farmers’ finances, although many are also struggling to produce more due to bad weather and rising costs.

Unfortunately for Kiwi and Aussie bulls, the currencies’ historical correlation with commodity prices has broken down in recent months and it’s far from clear when it might recover.

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Editing by Muralikumar Anantharaman

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