Australia, NZ dollars hold gains as US dollar backtracks

[SYDNEY] The Australian and New Zealand dollars held near multi-week highs on Friday, both buoyed by positive economic news at home and market expectations for only gradual further rate rises in the United States.

The Aussie dollar was firm at US$0.7667, having stretched to a five-week peak of US$0.7680 overnight. The currency was up 2 per cent on the week so far, with the US dollar undermined by a cautious outlook on inflation from the Federal Reserve.

Breaks of chart resistance had also laid the groundwork for a run to the next target at US$0.7730.

"From a technical perspective the Aussie has room to move higher and a weekly close above US$0.7611 would support the view for further gains near term," said Rodrigo Catril, a senior FX strategist at NAB.

"With a light domestic calendar, US tax reform and its impact on the USD is likely to be the determining factor of AUD fortunes over the coming week."

The US currency has waxed and waned with the prospects for the Republicans' tax cuts, which may be voted on as early as next week. Passage would tend to support Wall Street stocks and the US dollar, while a failure could see a sharp reversal in the currency.

The Aussie has been underpinned by strong economic data with November jobs figures out on Thursday blowing past all expectations.

Its kiwi counterpart was boosted earlier in the week by the selection of Adrian Orr, a well-regarded former central banker, to head the Reserve Bank of New Zealand.

The kiwi was steady at US$0.6990, having hit its highest in almost two months at US$0.7028 on Thursday. It held gains of 2.1 per cent for the week so far, but faces stiff resistance around US$0.7050.

Its next major test will be New Zealand's gross domestic product data on Dec 21, which is expected to show that growth slowed in the third quarter.

Westpac Economist Michael Gordon is tipping growth of 0.4 per cent, half the pace of the second quarter.

"A soft GDP result could knock interest rates and the New Zealand dollar lower on the day, although there's already evidence emerging that the weakness was temporary," he said.

Mr Gordon also noted that the report could contain large upward revisions to economic growth over the past couple of years, which would balance any softness in the third quarter.

New Zealand government bonds rallied in line with US Treasuries, with yields as much as five basis points lower at the long end.

Australian government bond futures likewise gained, with the three-year bond contract up 4.5 ticks at 97.955. The 10-year contract added 4.75 ticks to 97.4700.

REUTERS