Australia dollar inches up on new China capital rules, NZ slips

[SYDNEY]The Australian dollar edged up on Wednesday, aided by tighter capital controls from China, while the New Zealand dollar extended its losing streak for a fourth straight session on weaker dairy prices.

The Australian dollar added 0.12 per cent to US$0.7227, edging away from a seven-month trough of US$0.7163 hit last week.

Traders said there was some relief that a feared rush of capital out of China had yet to eventuate, with Beijing slapping tighter controls on foreign currency purchases over the weekend.

The Aussie is often used as a liquid proxy for the yuan and had been under pressure recently on worries the yuan would come under pressure when China's individual annual quota for foreign currency purchases was reset this week.

The Aussie lost 2.8 per cent in January last year when the yuan tumbled amid heavy capital outflows.

"Of course these are early days, but to the extent that the news eases concerns of a possible repeat of last January's China's equity and CNY meltdown, that is good news for China and the AUD," said Rodrigo Catril, currency strategist at National Australia Bank.

It also did well against other currencies, rising 0.2 per cent versus its New Zealand counterpart and 0.3 per cent on the yen. Both the euro and the pound slipped on the Aussie.

The New Zealand dollar was down 0.28 per cent at US$0.6895, but has solid chart support in the US$0.6863/6890 zone.

International milk prices posted their largest fall in three months in the first dairy auction of the year. It was the first time in more than six months that prices fell at consecutive fortnightly auctions.

Analysts cautioned against reading too much into the data as the auction saw softer volumes and smaller bidders. The Global Dairy Price index is still up about 44 per cent year-on-year.

Australian government bond futures eased in line with US Treasuries, with the three-year bond contract down 4 ticks at 97.930. The 10-year contract was off 5.5 ticks at 97.1600.

New Zealand government bonds bucked the global trend and rose in price, sending yields about 4 basis points lower at the long end of the curve.

REUTERS