The Australian and New Zealand dollars have continued their upward momentum, hitting new highs as traders move away from the US dollar amidst cooling global inflation.

What does this mean?

Both the Australian and New Zealand dollars have been riding a winning streak. On Wednesday, the Australian dollar held steady at $0.6745, after reaching a one-month peak of $0.6749 on Tuesday. This marks a 6.4% rise from its August low, with resistance predicted at $0.6760 and $0.6798. Meanwhile, the New Zealand dollar soared to a six-week high of $0.6160, gaining 0.7% overnight and boasting a 5.4% increase since its August low, driven in part by a 5.5% rise in global milk prices. Traders are selling the US dollar, influenced by Sweden's central bank cutting rates and Canada reporting a 40-month low in inflation. Additionally, global bonds are rallying and yields are dropping, further weakening the greenback.

The sell-off of the US dollar is picking up pace as traders anticipate downward revisions to US payroll data and look forward to the Federal Reserve's minutes release. These elements are fueling expectations for potential rate cuts. Meanwhile, the Australian dollar and British pound are seeing gains as investors unwind yen carry trades. This suggests that current market conditions are highly fluid, with traders responding swiftly to geopolitical and economic shifts.

The bigger picture: A global financial reshuffling.

The appreciation of the Australian and New Zealand dollars highlights broader global economic movements. FX strategists at DBS Bank suggest that the dollar index is near reversing the year's gains, signaling a period of USD weakness. While global currencies rise against the dollar, persistent inflation and policy responses around the world are refashioning the financial landscape. Yet, despite these gains, the Australian dollar remains weak against the Japanese yen, suggesting that regional dynamics continue to play a crucial role.