Australia, NZ dollars extend rally, sterling on the slide

[SYDNEY] The Australian and New Zealand dollars added to broad gains on Tuesday after their US counterpart ran into more profit-taking and political jitters saddled the British pound with its worst selloff in five months.

The Aussie dollar was firm at US$0.7380, after rising 0.7 per cent overnight. It now faces tough chart resistance in the $0.7386/96 zone.

The New Zealand dollar was up at US$0.7037, after gaining 0.9 per cent overnight, but again faces stiff hurdle around US$0.7060.

Both were helped along by a steep fall in the sterling on investors' concerns the UK government was heading for a "hard Brexit", where border controls are prioritised over market access and free trade.

In response, the Aussie jumped 1.9 per cent to £0.6043 for the largest single day gain since August. It was last trading at £0.6063, heights last seen in mid-November.

Domestically, Australian data on retail sales undershot forecasts with a rise of only 0.2 per cent, but that still left consumer spending on a firmer track for the fourth quarter.

"Even with the slightly weaker result for November, we are still comfortable expecting Q4 real consumption growth to have picked up," said Michael Turner, a strategist at RBCCM.

"Also, a good Christmas is much more important than a good November and, in that regard, most anecdotes have been positive, particularly for consumer durables."

All the signs are the economy had returned to growth after a shock contraction in the September quarter, lessening the need for further stimulus from the Reserve Bank of Australia (RBA).

The futures market has priced out almost any chance of a further cut in the 1.5 per cent cash rate and instead it is toying with the chance of a hike late in 2017.

Australian government bond futures edged higher on Tuesday in line with a bounce in Treasuries. The three-year bond contract added four ticks to 98.000, while the 10-year contract rose six ticks to 97.2600.

New Zealand government bonds joined the rally, with cash yields falling as much as six basis points.

REUTERS