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Australia, NZ dollars mark time before Tuesday's RBA policy review

Monday, October 3, 2016 - 10:36

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The Australian and New Zealand dollars marked time on Monday as global sentiment remained hostage to events at Deutsche Bank, while investors awaited fresh news on the outlook for domestic interest rates.

[SYDNEY] The Australian and New Zealand dollars marked time on Monday as global sentiment remained hostage to events at Deutsche Bank, while investors awaited fresh news on the outlook for domestic interest rates.

The Australian dollar was holding at US$0.7650, having traded in a tight quarter-cent range so far. The currency briefly got above 77 US cents last week but again failed to sustain the break, a repeat of price action seen for the last couple of months.

Holidays in Asia kept markets thin, leaving investors to await the Reserve Bank of Australia's (RBA) October policy meeting on Tuesday for some impetus.

All of the 57 economists polled by Reuters forecast the RBA would stand pat on Tuesday, though a majority did still expect one more easing in coming months.

Policy makers have been reluctant to ease further in part on concerns ever-lower rates would lead to a debt-driven bubble in home prices.

Figures out on Monday from property consultant CoreLogic showed home prices for the combined capital cities climbed one per cent in September, from August when it rose 1.1 per cent.

Annual growth in prices ticked up to 7.1 per cent in September, from 7 per cent in August, though that remained a long way from last year's peak atop 11 per cent.

Risk appetites have also waxed and waned with developments in Deutsche Bank's efforts to negotiate down a proposed US$14 billion fine from the US justice department.

A report on Friday suggested it might only pay US$5.4 billion, but the Wall Street Journal on Sunday reported no deal had been agreed as yet.

The New Zealand dollar was likewise little moved at US$0.7263, sandwiched between support at US$0.7230 and resistance around US$0.7300.

With little local data on the horizon, the next key event was Tuesday's RBA meeting, the first under its new governor.

"No action is expected. We also do not anticipate significant change to its tone, particularly given the Governor's frank remarks at his parliamentary testimony," said BNZ FX Strategist Kymberly Martin.

Governor Philip Lowe had offered an upbeat view of the economy and noted monetary policy faced diminishing returns as rates got lower.

New Zealand government bonds eased, sending yields 0.1 basis points higher at the short end and 4.5 basis points higher at the long end.

Australian government bond futures slipped, with the three-year bond contract off three ticks at 98.520. The 10-year contract lost six ticks to 98.0200.

REUTERS

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