Australia, NZ dollars bend before US$, but firm elsewhere

[SYDNEY] The Australian and New Zealand currencies struggled on Thursday as the US dollar steamed ahead on bets that inflation and interest rates will rise in the United States, both in December and over 2017.

The Australian dollar hovered around US$0.7374, having met stiff resistance at US$0.7446 on Wednesday. Minor support was found around US$0.7365 and a break of US$0.7340 would signal a test of the strong support base of US$0.7286-US$0.7305.

Much of the Aussie softness came after upbeat US data reinforced expectations of a rate hike by the Federal Reserve with investors nearly fully priced for a December move, according to CME FedWatch.

Still, the Aussie dollar showed resilience against other currencies, rising on the yen and euro thanks in part to strength in key commodity prices.

"We have to consider that the surging greenback has affected almost all other currencies," said Greg McKenna, chief market strategist at CFD and FX provider AxiTrader. "It (the US dollar) is a freight train that seems over limit at the moment, but may have a long way to go before what looks and feels like a structural adjustment settles down," he added.

Cushioning the Aussie were further gains in iron ore, the country's single biggest export earner. Futures traded in China were up almost 5 per cent, having jumped over 7 per cent on Wednesday.

Also helping was carry demand, where investors borrow at low rates in yen to buy higher yielding assets such as the Aussie and kiwi.

The Aussie held near its highest since April around 83 yen , while the kiwi stood at 78.60 yen, having touched a 10-month peak above 79 yen on Wednesday.

The Antipodeans have gained more than 1 per cent against the Japanese unit this week.

Tokyo markets re-opened following a public holiday on Wednesday while US markets will be closed on Thursday for Thanksgiving.

Across the Tasman Sea the New Zealand dollar fell just below 70 US cents, having slipped as far as US$0.6973. It was pulling away from this week's peak of US$0.7086.

US Treasuries, New Zealand government bonds dropped, sending yields 10 basis points higher at the long end of the curve.

Australian government bond futures skidded to multi-month lows. The three-year bond contract slipped 4 ticks at 98.080, having touched its lowest since April.

The 10-year contract shed 5.5 ticks to 97.2750, having gone as far as 97.2550, a level not seen in 11 months.

The 20-year contract fell 6 ticks to 96.6750.

REUTERS