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Australia, NZ dollars carried by yield play

Wednesday, April 20, 2016 - 11:03

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The Australian and New Zealand dollars stood near 10-month peaks on Wednesday after fading concerns about global growth and rising metal prices sparked demand for carry trades.

[SYDNEY] The Australian and New Zealand dollars stood near 10-month peaks on Wednesday after fading concerns about global growth and rising metal prices sparked demand for carry trades.

The Australian dollar took a breather at US$0.7785 after investors opted to book profits, having flown to US$0.7827 on Tuesday, a high not seen since June.

It has climbed two cents in three sessions with the next major resistance found at US$0.7849. A break of this would put the next target at the May 2015 peak of US$0.8164.

Martina Song, a strategist at Westpac Bank expects further appreciation given rising iron ore prices, Australia's top export earner.

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The value of the mineral has jumped 16 per cent so far this month and, if sustained, would post a third consecutive monthly gain.

Underpinning the Aussie, up 7 per cent this year, is demand for carry trades amid ultra-loose policies in Japan and Europe and a cautious US Federal Reserve.

Investors were awaiting the outcome of the European Central Bank's (ECB) policy meeting on Thursday with expectations it will stand pat following last month's bold easing moves.

The New Zealand dollar paused at US$0.7015, having touched a 10-month peak of US$0.7055 on Tuesday. Helping the kiwi, up two US cents since Monday, was a rise in global dairy prices. The fortnightly global dairy sale showed prices rose for the second consecutive auction as volumes dropped.

"Kiwi broke the psychological US$0.70 number amid a positive'risk' session," ANZ analysts said in a research note.

"The auction lifted and kiwi continues to look like its heading for resistance near US$0.72." New Zealand government bonds eased, sending yields three basis points higher at the long end of the curve.

Australian government bond futures were quiet, with the three-year bond contract steady at 98.030. The 10-year contract rose two ticks to 97.4600, while the 20-year contract was flat at 96.8850.

REUTERS

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