SYDNEY, July 21 (Reuters) - The Australian and New Zealand dollars were testing their lows for the year on Wednesday as the inexorable spread of the Delta variant shut more of the Australian economy and undermined risk sentiment globally.
Technical forces had also turned decidedly bearish as major support levels gave way, encouraging shorting by black box and algorithmic funds that follow trends.
That left the Aussie wallowing at $0.7307 after diving as deep as $0.7300 overnight, its lowest since November last year. Chart support lies around $0.7255 and $0.7224 but it needs to get above $0.7410 to relieve the pressure.
The kiwi dollar fared little better at $0.6914, having buckled to an eight-month trough of $0.6882 overnight following a break of support around $0.6920.
“For the Aussie, the lower end of a three-month down channel comes in at $0.7315 today,” noted Richard Franulovich, Westpac’s head of FX strategy.
“Near term, the rising third wave of global case Covid cases/heightened fear of the delta variant and the increasingly severe lockdowns across Australia, all point to the risks of an extension down towards $0.7200/25 over the next few weeks.”
The dire impact of lockdowns was underlined on Wednesday by data showing retail sales slumped 1.8% in June, three times the fall expected by the market.
An even worse result was expected this month given more than half the population were now shut in, fuelling speculation the Reserve Bank of Australia (RBA) would have to reconsider its plan to taper bond purchases from September.
All of this helped pull 10-year bond yields down to their lowest since early February at 1.176%, a drop of 30 basis points in just the past month.
New Zealand yields have fallen less as a surge in domestic inflation had raised the risk of a hike in interest rates as early as next month.
Even here, the spread of the Delta variant globally had seen the market pare back the chance of an August hike from the Reserve Bank of New Zealand (RBNZ) to 62%, from around 90% last week, according to overnight index swaps.
“NZD is highly sensitive to changes in the global growth outlook,” noted analysts at CBA.
“The risk is the downward reassessment of the global recovery continues to shift market expectations for RBNZ rate hikes, pushing NZD/USD below our forecasts.”
(Editing by Ana Nicolaci da Costa)