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Australia dollar near multi-month peaks vs euro, Swiss franc; NZ dollar soft

Wednesday, February 22, 2017 - 09:32

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The Australian dollar was steady at US$0.7676, off a low of US$0.7650 on Tuesday.

[SYDNEY] The Australian dollar held its own against a sturdy greenback on Wednesday and hovered near multi-month peaks against the euro and Swiss franc as investors poured money into higher yielding assets.

The Australian dollar was steady at US$0.7676, off a low of US$0.7650 on Tuesday. It remained within sight of US$0.7732, a three-month peak touched recently, with a break above opening the way to the November high of $0.7778.

Underpinning the Aussie was rising prices of iron ore MYSTL-RIIOI-IMP , Australia's top export earner, which touched the highest since mid-2014.

On top of that the Aussie benefited from carry trade demand where investors borrow in lower yielding currencies - euros and Swiss francs in this case - to invest in higher yielding assets.

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The euro fell to two-year lows at A$1.3713 and a break of A$1.3679 would be the weakest since 2013.

The common currency has lost 5.7 per cent so far this year, largely because of market jitters about the outcome of elections in several European countries.

The Aussie also held near two-year peaks against the Swiss franc at 0.7734 francs.

At home, Philip Lowe, governor of the Reserve Bank of Australia, gave the clearest signal yet that further cuts in interest rates would not be in the national interest as the danger of a debt-fuelled boom and bust was too severe.

"The overriding message from the Governor is that he is very reluctant to cut the cash rate from here," said Gareth Aird, a senior economist at Commonwealth Bank of Australia.

"Lowe basically stated that it would take the unemployment rate to rise from here for policy to be eased again."

The RBA has kept interest rates at a record low 1.50 per cent after last easing in August.

The New Zealand dollar had a soft tone as a dent in global dairy prices hit investor confidence.

The Kiwi fell to US$0.7162, having touched US$0.7130 on Tuesday.

Prices for dairy, the country's largest goods export earner, dropped 3.2 per cent at an auction held early on Wednesday, on signals that milk production would be higher than expected.

The kiwi struggled against its Antipodean neighbour, with the Aussie reaching a three-month high of NZ$1.0737. It traded last at NZ$1.0717.

New Zealand government bonds eased, sending yields 3.5 basis points higher at the long end of the curve.

Australian government bond futures were also softer, with the three-year bond contract down two ticks at 97.930. The 10-year contract also shed two ticks at 97.1500, while the 20-year contract eased 2.5 ticks to 96.5300.

REUTERS

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