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Australia, NZ dollars at multi-month highs as bears pressure US dollar

Thursday, June 29, 2017 - 12:47

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The Australian dollar climbed to a three-month peak on Thursday while its New Zealand counterpart stood near its highest since February, largely due to a weakening US currency as investors wagered on policy tightening in Europe and Britain.

[SYDNEY] The Australian dollar climbed to a three-month peak on Thursday while its New Zealand counterpart stood near its highest since February, largely due to a weakening US currency as investors wagered on policy tightening in Europe and Britain.

The Australian dollar finally surpassed stubborn chart resistance around US$0.7636 to hit a high of US$0.7664, a level not seen since March 30.

The Aussie has been trudging higher since the beginning of June and is on track for its best monthly performance since January.

Also supporting the currency is a bounce in the price of iron ore, Australia's single biggest export earner. The Dalian ore contract has rallied 14 per cent from its lows in mid-June.

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The weakness in the US dollar "reflects a growing expectation that quantitative easing outside the US may be on borrowed time as economic growth picks up and deflationary forces dissipate," John Higgins of Capital Economics said.

European Central Bank President Mario Draghi sparked a euro rally on Tuesday, when he hinted that the ECB could trim its stimulus this year.

Bank of England Governor Mark Carney said on Wednesday that the central bank is likely to need to raise interest rates as the British economy comes closer to operating at full capacity.

But "we are forecasting some broad-based rebound in the US dollar against other major economies in the second half of this year," said Mr Higgins.

"It reflects our view that the Fed will raise interest rates by more than investors are envisaging."

The Federal Reserve hiked interest rates this month and left the door open for a further increase later in the year. A batch of mixed economic data recently has given investors' pause as to whether the Fed would be able to stay on its planned tightening path.

Australia's central bank will meet next week for its monthly monetary policy decision where it is widely expected to hold rates at a record low 1.50 per cent. It last eased in August 2016.

Across the Tasman Sea, the New Zealand dollar stood at US$0.7324, not far from its recent five-month peak of US$0.7344.

The currency, "continues to run into selling pressure above 0.7300. A reasonable break higher in coming days is possible, especially if US inflation data surprises to the downside on Friday night," said Sharon Zollner, senior economist at ANZ.

Locally, a survey showing business confidence was at a nine-month high lent support to the Kiwi.

New Zealand government bonds eased, sending yields 7.5 basis points higher at the long end of the curve.

Australian government bond futures fell to multi-week lows, with the three-year bond contract off five ticks at 98.070 - the lowest since May 9. The 10-year contract fell 4.5 ticks to 97.4550.

REUTERS

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