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Aussie runs into resistance at 4-month top, NZ dollar awaits dairy sale

Tuesday, March 21, 2017 - 12:16

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The Aussie was standing at US$0.7710 after reaching US$0.7748 overnight, which was the highest since early November when it got as far as US$0.7778.

[SYDNEY] The Australian dollar held near four-month peaks on Tuesday as the country's central bank stepped up warnings about overheating in the housing market, leading investors to pare the already scant chance of a further cut in interest rates.

The Aussie was standing at US$0.7710 after reaching US$0.7748 overnight, which was the highest since early November when it got as far as US$0.7778.

A break of November's barrier would put it in territory not visited since April last year and set up a push to the next chart target around US$0.7836. That also makes these levels extremely tough resistance, which could be hard to pierce.

The gains have mostly been driven by broad weakness in the US dollar after the Federal Reserve emphasised further tightening would be gradual following its rate hike last week.

Market voices on:

The Reserve Bank of Australia (RBA) is nowhere near raising rates itself, but any chance of a cut has vanished as it highlighted risks in the local housing market.

Minutes of its March policy meeting out Tuesday showed housing was very much on the mind of board members.

"The language around the housing market conveyed a sense of increased concern over the medium-term risks emerging from rising prices, increasing supply, and weak rental returns," said Su-Lin Ong, a senior economist at RBC Capital Markets.

"Our sense is that there is building pressure for additional macro prudential action."

Regulators have already told banks to limit growth in their mortgage books to 10 per cent a year and many have recently been raising rates on investment loans.

As a result, rate futures are now pricing in virtually no chance of another cut in the cash rate and some possibility of a hike early next year.

The New Zealand dollar was a shade softer at US$0.7045 after touching a two-week peak at US$0.7080 overnight.

The kiwi is back on a "slow-grind-higher trajectory", ANZ Bank senior rates strategist David Croy said in a research note.

"Growth is enviable, interest rates are enviable, the political scene is stable, and even the current account is under control. There isn't much not to like here, even if some recent data has come in a bit below expectations," he said.

The currency still has to weather a global dairy auction late Tuesday, which could well see another drop in prices for the country's biggest export earner.

New Zealand government bonds gained, sending yields 1.5 basis points lower.

Australian government bond futures were little changed. The three-year bond contract was flat at 97.950, while the 10-year contract added 1.5 ticks to 97.1500.


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