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Australia, NZ dollars off 10-mth peaks on Fed speculation, Singapore easing

Thursday, April 14, 2016 - 11:41

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The Australian and New Zealand dollars eased from 10-month peaks on Thursday after optimism about global growth gave investors an excuse to trim bearish US dollar positions, as it raised chances that the Federal Reserve will increase interest rates.

[SYDNEY] The Australian and New Zealand dollars eased from 10-month peaks on Thursday after optimism about global growth gave investors an excuse to trim bearish US dollar positions, as it raised chances that the Federal Reserve will increase interest rates.

Also undermining the Antipodean currencies was a surprise policy easing by Singapore's central bank, citing a tougher outlook for economic growth.

The Australian dollar eased to US$0.7645, from a high of US$0.7717 on Wednesday. Support was found at US$0.7596.

Even a healthy labour force report failed to lift the mood. Australia's unemployment rate fell to 5.7 per cent, its lowest since late 2013.

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That led the futures market to lengthen the odds of a rate cut, at least for the next few months.

The Aussie still held solid gains against the euro, which dropped to A$1.4684. The common currency has slipped 5 cents in one week, while the pound hovered near its lowest since January 2015 at A$1.8515.

The New Zealand dollar dropped nearly one per cent on the day to US$0.6860, and away from a peak of US$0.6952 touched on Wednesday. Support was found at US$0.6773.

Much of the move had to do with investors warming up once again to the idea of more tightening by the US Federal Reserve.

But for now the policy easing by the Monetary Authority of Singapore was a worrying sign for countries across Asia, according to Westpac analyst Sean Callow, who noted Singapore had now returned policy to where it was during the depths of the global financial crisis.

"As one of the world's most trade-sensitive economies, Singapore's concern over a "less favourable external environment" should be noted by the likes of the RBA and RBNZ," he said.

Both the Reserve Bank of Australia (RBA) and the Reserve Bank of New Zealand (RBNZ) are under pressure to ease again, in part because of the recent strength of their currencies.

Inflation figures from New Zealand due next week could provide a trigger for a move there.

"A low headline inflation starting point...is on the face of it another tick in the box for a lower cash rate, and sooner rather than later," ANZ economists said in a research note.

New Zealand government bonds gained, sending yields one basis point lower.

Australian government bond futures extended losses on the jobs data, with the three-year bond contract off five ticks at 98.070.

The 10-year contract shed half a tick to 97.4800, while the 20-year contract was steady at 96.8900.

REUTERS

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