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Australia, NZ dollars keep low profile on diverging rate outlook

Monday, May 23, 2016 - 11:06
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The Australian and New Zealand dollars struggled for traction on Monday, after three punishing weeks because of the diverging interest rate outlook for the Antipodean economies and the United States.

[SYDNEY] The Australian and New Zealand dollars struggled for traction on Monday, after three punishing weeks because of the diverging interest rate outlook for the Antipodean economies and the United States.

The Australian dollar marked time at US$0.7237, having briefly dipped last week below 72 US cents for the first time since early March. Resistance was found at US$0.7333 and support at US$0.7175.

"Gains in equity markets and a bounce in iron ore prices helped AUD keep above US$0.72," said Sean Callow, a senior currency strategist at Westpac.

Still, some analysts forecast a retracement all the way to US$0.6827 on growing speculation the US Federal Reserve may raise rates in June, giving the US dollar even more strength.

The Aussie is down nearly 5 per cent this month with speculative funds cutting long Aussie positions, data from the Commodity Futures Trading Commission.

Net long positions were still around 25,000, suggesting the Aussie had room to fall.

For now, focus will fall on Reserve Bank of Australia (RBA) governor Glenn Stevens, who is due to address the Trans-Tasman Business Circle on Tuesday, in what will be his first public appearance since the May 3 interest rate cut.

Markets will look for any hint on whether the RBA will cut again as the minutes of the May meeting suggested the move could have been a one-off.

Interbank futures are fully priced for another easing to a record low of 1.5 per cent later this year.

The New Zealand dollar was unchanged early Monday at US$0.6770, from a two-month trough of US$0.6710 touched last week. It has shed nearly 3 per cent so far this month, partly on expectations the Reserve Bank of New Zealand may cut rates at its policy review of June 9.

A Reuters poll showed the vast majority of economists forecast an easing to an all-time low of 2 per cent next monthly.

A lack of New Zealand data means investors will look to the preliminary Markit PMI surveys and comments expected from US Federal Reserve officials later in the global trading day for direction, said ANZ Bank. Domestically the main focus is on the government's budget, due to be presented Thursday.

ANZ tipped the New Zealand dollar to trade in a short term range of US$0.6700-US$0.6800.

New Zealand government bonds eased a tad across the short end of the curve, up 1 bps, while the long end was unchanged.

Australian government bond futures were mixed, with the three-year bond contract off one tick at 98.390. The 10-year contract edged up one tick to 97.7100, while the 20-year contract was steady at 97.0850.

REUTERS