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Australia, NZ dollars dumped for yen, Swiss franc as risk shunned

Friday, August 11, 2017 - 14:03

[SYDNEY] The Australian and New Zealand dollars slipped for a third straight session on Friday as the escalating war of words over North Korea spooked investors toward safe harbours including the yen and Swiss franc.

With stocks and equities falling across Asia and volatility on the rise, funds pared back riskier positions in carry trades which typically favour the higher-yielding Antipodeans.

The Aussie lost 0.4 per cent on its US counterpart to stand at US$0.7845, bringing its loss for the week so far to 1 per cent. It was down 2.6 per cent on the week against the Swiss franc and 2.5 per cent on the yen.

Japan is the world's biggest creditor nation and there is an assumption that investors there will repatriate funds at times of crisis. "Risk aversion has picked up though many will argue that we have heard it all before," said Sean Callow, a senior currency strategist at Westpac.

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"Positioning suggests AUD and NZD are vulnerable to a short term USD bounce," he added, noting speculators have been sitting on large long positions in the Antipodean currencies.

The sabre-rattling over North Korea overshadowed another upbeat outlook from Reserve Bank of Australia (RBA) Governor Philip Lowe, who told lawmakers the next move in interest rates was likely to be up albeit not for some time yet.

Mr Lowe also ruled out intervention to curb the currency, saying it would only be undertaken in "extreme" situations.

The New Zealand dollar was down at US$0.7276, and heading to a loss for the week of 1.9 per cent. It was also down a hefty 4.7 per cent on the yen and 4 per cent on the Swiss franc.

The currency took an added hit on Thursday when a top official at New Zealand's central bank said they were becoming more uncomfortable with the strength of the currency and the market should recognise that.

The shift to safety was a boon for Australian government bonds, however, which are among the few in the world with a triple A rating.

The Aussie three-year bond contract climbed 5 ticks to 98.080, while the 10-year contract jumped 8 ticks to 97.4250. Yields on the cash 10-year bond fell to their lowest in five weeks at 2.585 per cent.

New Zealand government bond yields were as much as 4 basis points lower at the long end of the curve.

REUTERS

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