NZ dollar near 2-week lows, Aussie struggles as greenback bounces

[SYDNEY] The New Zealand dollar held near two-week lows on Monday while its Australian cousin steadied after four sessions of losses as the greenback finally found some favour from an upbeat US jobs report.

The New Zealand dollar slipped 0.3 per cent to US$0.7395, just above last week's trough of US$0.7392 - the lowest point since July 21.

The kiwi is still up more than 10 per cent in the past three months - a worry for the Reserve Bank of New Zealand (RBNZ) which is all but certain to leave cash rates at a record low 1.75 per cent on Thursday.

The RBNZ slashed rates three times last year by a total 75 basis points in an attempt to boost consumer prices.

There are growing expectations the RBNZ will attempt to "jawbone" the currency following last month's news of slower-than-expected second quarter inflation.

"Together with the low New Zealand Q2 CPI, the recent lift in the NZD raises the question of whether the RBNZ will talk down the NZD or replace its monetary policy's neutral bias with an easing bias," said Joseph Capurso, rates strategist at CBA. "We think the RBNZ will do neither, though it is a risk." An RBNZ survey on Monday showed inflation expectations for two years ahead had slipped to 2.09 per cent, from 2.17 per cent in the second quarter. The pullback adds to the case for keeping rates low for longer.

The antipodean currencies have soared since June on broad US dollar weakness as a series of poor US indicators added to uncertainty about the Federal Reserve's plan to start shrinking its balance sheet.

But the US dollar won a reprieve on Friday when nonfarm payrolls rose by a bigger-than-forecast 209,000 last month, while average hourly earnings increased 0.3 per cent.

The Australian dollar stood at US$0.7942. The Aussie has climbed over 7 per cent in just two months but ran into stiff chart resistance atop US$0.8000 late in July and has since struggled around that barrier.

The Reserve Bank of Australia last week warned that further gains in the currency would threaten its outlook for growth and inflation, although it felt current levels were not a major threat.

The only domestic data out on Monday showed Australian job advertisements rose for a fifth straight month, suggesting a strong pick up in employment seen in recent months could run for a while yet.

Australian government bond futures slipped, with the three-year bond contract down 1 tick at 98.060. The 10-year contract fell 3.5 ticks to 97.3450.

New Zealand government bonds eased, sending yields 2.5 basis points higher at the long end of the curve.

REUTERS