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Australian dollar off after soft data, hawkish Fed; NZ$ down

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The Australian dollar eased for a fourth straight session on Thursday following weaker-than-expected economic data and as the U.S. dollar climbed on expectations of faster interest rate rises in the world's largest economy.

[SYDNEY] The Australian dollar eased for a fourth straight session on Thursday following weaker-than-expected economic data and as the U.S. dollar climbed on expectations of faster interest rate rises in the world's largest economy.

The Australian dollar was down 0.2 per cent at US$0.8040, drifting away from a 2-1/2 year peak of US$0.8136 set last week.

The Aussie has started the year with a bang, soaring about 3 per cent in January alone led by blistering commodity prices. But its golden run seems to have ended with the currency on course for its first weekly loss after seven consecutive gains.

Thursday's weakness came after domestic data showed building approvals tumbled 20 per cent in December against expectations of an 8 per cent fall.

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The Aussie was already soggy after tepid reading on inflation on Wednesday led investors to push out the likely timing of a hike in interest rates.

The market currently implies around a 50-50 chance of a hike from the Reserve Bank of Australia (RBA) by October, and is not fully priced for a move to 1.75 per cent until early next year.

The US Federal Reserve, on the other hand, is now expected to hike rates two to three times in 2018 as it sees both inflation and economic activity picking up in the year.

The contrasting policy stance took Australian bond yields to 27 basis points under those on two-year US Treasuries, a negative spread not seen since 2000.

Across the Tasman Sea, the New Zealand dollar slipped from a one-week high of US$0.7420 to last trade around US$0.7360.

The kiwi jumped 3.8 per cent in January and is on track to clock its eight straight weekly gain.

Analysts expect the antipodean currencies to continue to do well.

"The large radical changes to the European Central Bank, RBA and Reserve Bank of New Zealand's monetary policy from easing to tightening have not been fully priced by the market," said Richard Grace, currency strategist at Commonwealth Bank.

"Furthermore, these countries' exchange rates have to appreciate to reflect their better performing economies, and in Australia and New Zealand's case, rising commodity prices. The USD typically depreciates, by default, when the global economy picks up momentum."

New Zealand government bonds eased, sending yields 1 basis point higher at the long end of the curve.

Australian government bond futures were mixed, with the three-year bond contract up half a tick at 97.810. The 10-year contract eased 2 ticks to 97.165.

REUTERS

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