australian dollar
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The Australian dollar on Monday dropped to its lowest level in five years, caused by the growing concerns that the global trade war could lead to a worldwide recession.

These worries have led some traders to expect larger-than-usual interest rate cuts in Australia. Meanwhile, attention is turning to New Zealand, where the Reserve Bank is set to meet on Wednesday.

With global uncertainty still high, market indicators suggest there is a 22% chance the central bank could cut interest rates by 50 basis points for the fourth time in a row, Reuters reported.

Australian dollar nears pandemic lows

Traders are also watching the Reserve Bank of Australia, with markets showing a 20% chance it could cut interest rates by a large 50 basis points in May, despite keeping rates unchanged just last week. The Australian dollar is struggling to stay above 60 US cents after falling to a five-year low of $0.5933 earlier in the day.

Following a 4.5% drop on Friday, the currency is on track for its biggest two-day fall since early 2020. There appears to be little support for the Aussie until it nears its pandemic low of $0.5510.

Tony Sycamore, an analyst at IG, said the outlook for the Australian dollar looks very weak and could decline even more unless global tensions ease. He explained that if a full-blown global trade war breaks out, especially with rising tensions between China and the U.S., there aren't many positive outcomes for the Aussie dollar.

Asian markets slide

Asian stock markets fell sharply on Monday due to rising global trade tensions. China, Australia's biggest trading partner, responded to U.S. tariffs with its own, adding to market fears. Chinese stocks dropped 4%, while Hong Kong's Hang Seng Index sank 8.5%.

The Chinese yuan also weakened to its lowest level in two months. Because the Australian dollar is often traded as a stand-in for the yuan, it was affected too. The New Zealand dollar fell slightly to $0.5577 after a steep drop on April 4.

The Reserve Bank of New Zealand, which has already cut interest rates by 175 basis points since last August, is expected to make a smaller 25-basis-point cut on Wednesday in response to the growing trade war.

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