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Australia dollar at 2-year peak
[SYDNEY] The Australian dollar soared to a two-year high on Monday while its New Zealand cousin paused at a 4-1/2 month peak as risk-on sentiment dominated amid diminishing worries of aggressive policy tightening in the United States.
Aussie bulls were also motivated by stronger-than-expected economic data from China, Australia's No 1 trading partner.
China reported second-quarter gross domestic product expanded 6.9 per cent on the year, driven by strong industrial output, exports, retail sales and investment.
The Australian dollar climbed to $0.7839, a level last seen on June 2015, after breaching major chart resistance in the $0.7700/7778 range. The Aussie was last at $0.7812 with bulls targetting the 200-week moving average around $0.8026.
"China's GDP data is quite encouraging for Australia. That suggests continued demand for Australian goods, including tourism," said Craig James, Sydney-based chief economist at CommSec. "It is encouraging for global growth as well because China is the second largest economy on the planet." The Aussie has been climbing tirelessly since last week following comments from the US Federal Reserve Chair Janet Yellen that sounded less hawkish than some had feared.
That sent a green light for risk-taking, boosting carry trades where investors favour high-yielding currencies such as the Aussie and the Kiwi over safe haven assets.
"The talk over the weekend and today is around the moves in the AUD. It's on fire," said Chris Weston, Melbourne-based chief market strategist at IG Markets.
"...The combination of positively trending global equities, low volatility, widening nominal and real bond yield differentials and outperformance from emerging markets clearly makes the AUD the vehicle of choice to express this thematic - the hunt for carry and yield is alive." Across the Tasman Sea, the New Zealand dollar was down 0.41 per cent at $0.7318, from a high of $0.7369 touched last week, ahead of second-quarter inflation data due on Tuesday.
Consumer prices likely rose only 0.2 per cent from the January-March period, while the annual pace is forecast to slow to 1.9 per cent. Such a pullback could strengthen the central bank's resolve to keep interest rates at record lows for some time to come.
New Zealand government bonds eased, sending yields 1-1.5 basis points higher on the long end of the curve.
Australian government bond futures were mixed, with the three-year bond contract down 1 tick at 98.00. The 10-year contract was flat at 97.2850.