Australia dollar battered by oil dip, hostage incident, NZ dollar softer

[SYDNEY] The Australian dollar dropped to 4-1/2-year lows on Monday on falling commodity prices and concerns about global growth, while a hostage incident in Sydney further undermined sentiment.

The Australian dollar slipped to US$0.8214, from US$0.8244 in early trade. It plumbed US$0.8204, the lowest since mid-2010, as Brent crude futures fell to a new five-year low near US$60 a barrel.

Selling against the yen also pressured the Aussie which dropped to a six-week trough of 96.80. It was last at 97.44, having shed more than 5 yen in three weeks.

Not helping sentiment was a hostage siege in the heart of Sydney, where dozens of people were believed to be trapped inside a cafe, raising fears of an attack by Islamic militants.

"People don't need much reason to sell the Aussie and they have the approval from the Reserve Bank of Australia to do so,"said Sean Callow, a senior strategist at Westpac, seeing the Aussie at 81 cents in one month.

The government released its mid-year budget update showing a deficit expected to balloon to A$40 billion in the year to June, versus A$30 billion forecast in May. The deterioration is due to falling prices for key resource exports which are eating into tax revenue.

Across the Tasman sea, the New Zealand dollar edged down to US$0.7754, from US$0.7768 in early trade, having clawed back from a 2-1/2-year low of US$0.7609 hit last week.

It may, however, retest that low if global dairy prices continue to fall at a fortnightly auction later this week, and if the Federal Reserve signals that US interest rates will rise next year.

Large gains in the kiwi may be capped by technical resistance above US$0.7809, where the bottom of the daily Ichimoku cloud lies. Above that, trendline resistance drawn from a three-year high hit in July lies at US$0.7854.

Having slipped nearly 1 per cent so far this month, seasonal trends may favour the kiwi, which tends to gain in December, benefiting from year-end portfolio rebalancing which often involves selling the US dollar.

New Zealand government bonds rose, pushing the 10-year yield around 4 basis points lower to 3.755 per cent, its lowest since mid-2013.

Australian debt futures scaled two-year peaks with the three year contract up 5 ticks to 97.800 and the 10-year contract up 2 ticks to 97.1050 in a bullish steepening of the curve.

REUTERS