[SYDNEY] The Australian and New Zealand dollars were off lows against their US counterpart and yen on Tuesday, but investors remained wary of China's recent erratic yuan guidance and its ultimate policy intentions.
The Australian dollar was squeezed higher to US$0.6990 in an extremely oversold market, having hit a four-month trough of US$0.6927 on Monday. It is still down 4 per cent so far this year and a break under US$0.6892 would take it to ground last trod in 2009.
It did prove resilient to a 1.5 per cent drop in prices of iron ore, Australia's top export earner.
Dealers warned the reprieve may only be short-lived as the market was still wary of China's policymaking, even after comments from a central bank official.
Ma Jun, chief economist at the People's Bank of China (PBOC), said that the central bank planned to keep the yuan basically stable against a basket of currencies, and fluctuations of the Chinese currency against the US dollar would increase.
Versus the safe-haven yen, the Aussie stood at 82.24 yen and up from a three-year trough of 80.84. The kiwi held at 77.24 yen, off from a four-month low on Monday.
The New Zealand dollar edged up slightly to US$0.6560 after falling as far as US$0.6509 in early morning trading.
Analysts said the kiwi, which has lost almost 5 per cent since the beginning of the year, was the victim of weakness in Chinese shares. "Given risk-off trading in global markets NZD/USD may continue to grind lower," said ANZ analysts in a research note."The market remains myopically focused on China."
Analysts said the Kiwi would likely encounter resistance around the US$0.6590 level.
New Zealand government bonds eased, sending yields 3 basis points higher along the curve.
Australian government bond futures dipped, with the three-year bond contract off 3 ticks at 98.000. The 10-year contract was down 3.5 ticks at 97.2150, while the 20-year contract also fell 3.5 ticks to 96.7300.