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Australia, NZ dollars off lows in light trade, US elections eyed

Monday, October 10, 2016 - 09:54
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The Australian and New Zealand dollars had a firm tone on Monday as investors awaited the outcome of a US presidential debate, with markets having increased the probability of a victory by Democratic candidate Hillary Clinton.

[SYDNEY] The Australian and New Zealand dollars had a firm tone on Monday as investors awaited the outcome of a US presidential debate, with markets having increased the probability of a victory by Democratic candidate Hillary Clinton.

The Australian dollar hovered around 76 US cents, having bounced from a two-week low of US$0.7553 on Friday. Resistance was found at a double-top of US$0.7624. Support was found at the 61.8 retracement of the US$0.7443/US$0.7711 move at US$0.7545.

Trading was subdued due to a public holiday in Japan, while Chinese markets reopened after being shut for a week-long national break.

All eyes are on the US elections with presidential betting markets putting the probability of a Clinton win at more than 80 per cent.

"If Donald Trump outperforms, there would be a greater chance of Trump winning the elections and the US dollar would rise against most major currencies," said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia. "It's because his economic policies are inflationary and would force the Federal Reserve to increase interest rates at a faster pace than it would otherwise."

Mr Haddad forecasts slightly firmer Aussie and kiwi dollars should Mrs Clinton outperform.

Sterling slipped to A$1.6361, having dropped as far as A$1.5582 on Friday. It shed 3 per cent last week, the biggest fall since July with dealers forecasting more volatility amid concerns about a "hard" Brexit.

Likewise, it stood at NZ$1.7353 against the kiwi, from NZ$1.6507 touched in the last session.

The pound is down around 20 per cent against the Antipodean currencies so far this year.

The New Zealand dollar rose slightly on Monday, continuing its gains since Friday when softer-than-expected US employment data weighed on the greenback.

The New Zealand currency was trading at US$0.7166 by lunchtime Monday, up from US$0.7110 on Friday.

"A lack of data and a US holiday should keep ranges tight over the coming day," said BNZ currency strategist Jason Wong, in a research note.

New Zealand government bonds gained, sending yields 1 basis points lower at the short end of the curve.

Australian government bond futures had a soft tone, with the three-year bond contract off 1 tick at 98.390. The 10-year contract was down half a tick at 98.8550 having touched its lowest since late June. The 20-year contract was half a tick higher at 97.2600.

The spread between local 10-year and 3-year bonds stood at 52 basis points, from 39 basis points late September, reflecting expectations of a steady interest rate until early next year.

REUTERS