Australia, NZ dollars fall off peaks as US$ rallies on Yellen comments

[SYDNEY] The Australian and New Zealand dollars came off multi-week peaks on Thursday as their US counterpart staged a sharp rebound after Federal Reserve Chair Janet Yellen suggested US interest rates could rise quickly this year.

The Australian dollar was sitting at US$0.7500 in late morning trading as it drifted away from a two-month high of US$0.7569 touched this week. It slipped 0.8 per cent in the previous session, its biggest one-day drop since Dec 14.

Analysts see chart support in the US$0.7465/US$0.7447 zone as they remained cautious ahead of US President-elect Donald Trump's inauguration on Friday.

"For AUD moves around the inauguration, it could come down to whether Trump puts more emphasis on a strong US dollar or on protectionism," said Matt Simpson, senior analyst at ThinkMarkets. "Any talk (against) a strong greenback should provide AUD/USD support, whilst protectionism and tariffs would likely weigh on commodity currencies."

The US dollar, which hit a 14-year high against a basket of currencies after Trump's upset victory in November, has had a rough start to the year.

But Ms Yellen infused new life into the greenback on Wednesday when she said "waiting too long to begin moving toward the neutral rate could risk a nasty surprise down the road - either too much inflation, financial instability, or both."

Locally, employment data for December failed to inspire traders with the jobless rate ticking up to a six-month high even though full-time work rose for a third straight month. "The bigger picture is that the labour market still looks fragile," said Paul Dales, chief economist at Capital Economics. "That is a further restraint on wage and income growth."

Across the Tasman, the New Zealand dollar was subdued too, after skidding 1.3 per cent in its biggest one-day percentage loss since Nov 9.

The Kiwi stood at US$0.7121, from a high of US$0.7219 hit earlier this week.

Economists at Westpac expect the Kiwi to sink to US$0.6800 in the next three months due to a rallying US dollar.

New Zealand government bonds slid, sending yields 12.5 basis points higher at the long end of the curve.

Australian government bond futures followed Treasuries lower, with the three-year bond contract down 5 ticks at 97.95. The 10-year contract fell 8.5 ticks to 97.20.

REUTERS