Australian, NZ Dollars Fall As Recession Fears Grow

The Australian and NZ dollars dropped against their major counterparts in the Asian session on Thursday, as risk sentiment deteriorated after Federal Reserve Chair Jerome Powell acknowledged that the central bank's attempts to bring down inflation with aggressive rate hikes could fuel a recession.

Powell said that the Fed's steep rate hikes could tip the economy into recession, although he still expects to achieve a "soft landing."

Money markets are pricing in a 75 basis point interest rate hike in July and a half-point move in September.

Oil prices dropped on worries of a slowdown in fuel demand as recessionary risks intensified.

In economic news, the manufacturing sector in Australia continued to expand in June, and at a slightly faster rate, the latest survey from S&P Global revealed with a manufacturing PMI score of 55.8.

That's up from 55.7 in May, and it moves further above the boom-or-bust line of 50 that separates expansion from contraction.

The survey also showed that the services index slipped to 52.6 in June from 53.2 in May, while the composite index eased to 52.6 from 52.9.

The aussie slipped to an 8-day low of 0.8927 against the loonie and near a 4-month low of 1.5345 versus the euro, down from its prior highs of 0.8969 and 1.5243, respectively. The aussie is poised to challenge support around 0.88 against the loonie and 1.55 against the euro.

The aussie edged down to 0.6883 against the greenback, from a high of 0.6928 seen at 7 pm ET. The aussie may locate support around the 0.67 level.

Reversing from its previous highs of 94.34 against the yen and 1.1031 against the kiwi, the aussie moved down to a 6-day low of 93.19 and a 2-day low of 1.0990, respectively. The aussie is seen finding support around 90.00 against the yen and 1.075 against the kiwi.

The NZ currency touched a new 4-month low of 1.6891 against the euro and a 6-day low of 84.66 against the yen, following its early highs of 1.6793 and 85.61, respectively. The next possible support for the kiwi is seen around 1.72 against the euro and 80.00 against the yen.

The kiwi retreated from an early high of 0.6288 against the greenback and was trading at 0.6251. The kiwi is likely to find support around the 0.60 level.

Looking ahead, PMI reports from major European economies are due in the European session.

Canada manufacturing and wholesale sales for May, U.S. weekly jobless claims for the week ended June 18 and S&P Global's services PMI for June will be released in the New York session.

At 10 am ET, Federal Reserve Chair Jerome Powell will testify on the semi-annual monetary policy report before the House Financial Services Committee in Washington DC.

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