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Australia, NZ dollars hit 1-month lows as USD, US bond yields surge

Monday, November 14, 2016 - 10:33

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The Australian and New Zealand dollars slipped to near one-month lows on Monday, falling for a fourth straight session, as soaring US Treasury yields led broader greenback strength.

[SYDNEY] The Australian and New Zealand dollars slipped to near one-month lows on Monday, falling for a fourth straight session, as soaring US Treasury yields led broader greenback strength.

The Australian dollar slipped as far as US$0.7525, its lowest since Oct13. It was last unchanged at US$0.7546.

The Aussie has lost about 1.5 per cent of its value since Donald Trump won the US presidential election last week, on speculation his policies could reignite inflation and with it drive up interest rates.

Mr Trump's victory also sent US Treasury futures to 10-month lows as investors expect him to adopt protectionist trade policies that may increase commodity prices and the cost of goods.

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Soaring bond yields have sent the dollar to a nine-month high against a basket of currencies, adding pressure on emerging markets across Asia.

"AUD/USD will continue to trade on the defensive because of USD strength and rising global bond yields," said Elias Haddad, senior currency strategist at Commonwealth Bank of Australia. "However, the lift in iron ore and coking coal prices offer the Australian dollar some support."

The Aussie had been on an upswing recently led by a rebound in the price of iron ore and coal - Australia's two biggest exports. Iron ore alone has climbed more than 33 per cent in the past month.

Investors will watch out for the Reserve Bank of Australia's minutes of November policy meeting on Tuesday, followed by governor Philip Lowe's speech in the evening.

Elsewhere, the Aussie outpaced its New Zealand cousin, up 0.7 per cent. It added about 1 per cent against the yen while rising for a second day against the euro.

The New Zealand dollar slipped 0.6 per cent to US$0.7085. It fell as low as US$0.7075, a level not seen since Oct17, after several strong earthquakes rocked the island nation on Monday, killing at least two.

Traders expect the kiwi to rebound in anticipation of payouts from insurers overseas while rebuilding work is likely to support an already strong economy, reducing the need for further interest rate cuts.

"Solid economic momentum into this event should provide some resilience, and with the fiscal accounts in improved shape, there is plenty of leeway for the Government to support any rebuild effort," said Philip Borkin, senior economist at ANZ.

"We suspect markets will trade ultra-cautiously until greater clarity on the extent of damage is available." New Zealand government bonds remained on a downward spiral, sending yields about 4 basis points higher at the short end of the curve and 8.5 basis points higher at the long end.

Australian government bond futures fell too, with the three-year bond contract down 4 ticks at 98.19. The 10-year contract slid 8.5 ticks to a 6-1/2 month low of 97.38.

REUTERS

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