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Australia, NZ dollars hold ground with commodities, carry trade

Friday, December 2, 2016 - 12:16
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The Australian and New Zealand dollars held steady on Friday as firm commodity prices and demand against the yen helped stave off pressure from their US counterpart.

[WELLINGTON] The Australian and New Zealand dollars held steady on Friday as firm commodity prices and demand against the yen helped stave off pressure from their US counterpart.

The Australian dollar was holding around US$0.7410, pretty much where it started the week.

The Aussie has support at US$0.7370 with chart resistance at 75 US cents, a level it failed to break three times this week.

Data on Friday showed retail sales beat market forecasts to rise 0.5 per cent in October, a welcome relief after a run of disappointing figures this week suggested the economy had all but stalled in the third quarter.

"The RBA is likely to be encouraged by these recent trends, leaving the Bank comfortably on hold for the time being," said Ivan Colhoun, chief economist at National Australia Bank.

The Reserve Bank of Australia (RBA) holds its last monthly policy meeting of the year next week and is widely expected to keep rates at 1.5 per cent for a fourth month.

Sentiment was aided by strength in iron ore and coal, Australia's two top exports. The RBA on Thursday reported its index of commodity prices surged 10.2 per cent in November, to be up 24 per cent on the year.

However, Mr Colhoun said the Aussie is likely to be more influenced by global factors in the short-term, with bond yields on US Treasuries and the greenback jumping on expectations of higher inflation in the United States.

"The resultant stronger US dollar is expected to put downward pressure on the Aussie dollar," Mr Colhoun said.

Investors will keep a close watch on US jobs report due later in the day and an Italian referendum on constitutional reform during the weekend.

The Aussie held strong on the yen at 84.47 after gaining for three straight days. It has been underpinned by carry trade demand, where investors borrow at low rates in yen to buy higher yielding assets.

The New Zealand dollar rose 0.1 per cent to US$0.7093 on Friday. It was on track to end the week 0.7 per cent higher for its second straight weekly gain.

Against the Australian dollar, it was little changed at A$1.0449.

"AUD/NZD continues to confuse. As the past five weeks have produced opposite directions at the close, we can safely say the markets remain undecided to the direction of the next major move," said Matt Simpson, senior analyst at ThinkMarkets.

Mr Simpson sees key chart support at A$1.041.

New Zealand government bonds slipped, with yields rising seven ticks across the curve.

Australian government bond futures dropped, with the three-year bond contract down five ticks at 98.00. The 10-year contract fell eight ticks to 97.1700.

REUTERS