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Australia, NZ dollars rise as oil prices rally

Thursday, September 29, 2016 - 12:29
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The Australian dollar climbed to a three-week high on Thursday, making its fourth straight day of gains with help from a surge in oil prices after the Organization of the Petroleum Exporting Countries agreed to trim output.

[SYDNEY] The Australian dollar climbed to a three-week high on Thursday, making its fourth straight day of gains with help from a surge in oil prices after the Organization of the Petroleum Exporting Countries agreed to trim output.

That gave the Australia dollar a boost as the country is a major exporter of natural resources, though it is a net importer of oil.

The Aussie ran past key chart resistance at 77 US cents to hit its highest since Sept 8 but soon settled back to US$0.7694, standing virtually unchanged from the last close.

The Aussie has breached 77 US cents several times in the past couple of months, but failed to hold above it.

It has added about 1 per cent this week and is set to end the month higher, although traders expect limited future gains.

"We expect further upside is capped until either commodity markets break significantly higher or the Reserve Bank of Australia signals that the next move for rates is higher," ANZ said in a note to clients.

"We think the RBA is still a long way from switching to a tightening bias."

Governor Philip Lowe gave an upbeat assessment on the economy earlier this month, but left the door slightly ajar for more cuts. The central bank is expected to keep its policy rate at 1.5 per cent at a policy meeting next week.

The Aussie climbed to a 1-1/2 month high of NZ$1.0581 against the New Zealand dollar, after two straight day of gains.

The New Zealand dollar climbed to US$0.7272, and off a low of US$0.7234, in line with other commodity-related currencies.

"The Canadian dollar was going up and the Aussie was going up and so we rose on the coat tails of that," said Jason Wong, currency strategist at BNZ.

Traders said the rebound in oil could make it attractive to short the kiwi against the Canadian dollar, particularly as the New Zealand currency hit a 34-year high against its Canadian counterpart.

"With an overvalued Kiwi and under priced oil, there is potential for NZD/CAD to roll over," said Matt Simpson, senior market analyst at ThinkMarkets. "For a sustainable, bearish move to unfold we'd require an interest rate cut here with a continued easing bias, combined with rising oil prices."

The Reserve Bank of New Zealand has signalled rates will likely be cut again, possibly in November.

New Zealand government bonds slipped, sending yields 2 basis points higher.

Australian government bond futures were mixed, with the three-year bond contract unchanged at 98.48. The 10-year contract fell 2 ticks to 98.025.

REUTERS