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Australia, NZ dollars resilient to soft data, yen carry helps

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The Australian and New Zealand dollars proved resilient on Thursday against a broadly firmer US counterpart and sliding iron ore prices, as carry trade demand drove the pair to multi-month peaks against the yen.

[SYDNEY] The Australian and New Zealand dollars proved resilient on Thursday against a broadly firmer US counterpart and sliding iron ore prices, as carry trade demand drove the pair to multi-month peaks against the yen.

The Australian dollar edged up to US$0.7390, having skidded 1.3 per cent on Thursday when US bond yields surged. Support was found at US$0.7364.

It briefly dipped following a surprising 4 per cent drop in local business investment versus forecasts of a 2.5 per cent fall. Planned investment estimates for 2016/17 also came in well under expectations at US$106.9 billion.

While the data underlined the risk of an economic contraction in the third quarter, a rare event in the Australian economy, the Aussie dollar quickly recovered as the report did little to change the market's view on interest rates.

"The Reserve Bank of Australia (RBA) is more concerned about low inflation than business spending," said Elias Haddad, a senior strategist at Commonwealth Bank of Australia.

The central bank holds its monthly policy review on Dec 6 and is considered almost certain to keep rates at a record low of 1.5 per cent.

Underpinning the Antipodean currencies was carry trade demand, where investors borrow at low rates in yen to buy higher yielding assets.

The Aussie held near seven-month highs against the yen to trade at 84.45. A break of 84.81 would test the April peak of 86.46. The Aussie surged nearly 6 per cent last month.

Likewise, the New Zealand dollar climbed to 81.25 yen , a level unseen since early this year. It rallied more than 8 per cent in December, the largest monthly gain in seven years.

Against its US counterpart, the New Zealand dollar was steady at US$0.7080. It dipped 0.7 per cent on Thursday and away from this week's peak of US$0.7170.

Strong support was found at US$0.7075, then US$0.7034.

New Zealand data showed house prices grew at the slowest pace in six months in November, signalling some easing of pressure in the red-hot property market.

Earlier this week, the Reserve Bank of New Zealand (RBNZ) flagged possible restrictions on mortgage lending to curb a soaring property market, suggesting it was done cutting rates.

Following a rout in US Treasuries, New Zealand government bond yields rose as much as 10 basis points at the long end of the curve.

Australian government bond futures also eased, with the three-year bond contract off five ticks at 98.040.

The 10-year contract dropped eight ticks to 97.2300 in a bearish steepening of the curve. The 20-year contract was steady at 96.6125.

Australian 10-year cash bond yields rose to 2.80 per cent and a break of 2.82 per cent would be the highest since early January.

REUTERS