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Australia, NZ dollars regain poise on fading yen strength, risk mood

Tuesday, April 12, 2016 - 11:27

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[SYDNEY] The Australian and New Zealand dollars rose on Tuesday after an upbeat local business survey combined with firm iron ore prices.

A weakening yen underpinned appetite for risk assets, which also helped the Australian and New Zealand currencies.

The Australian dollar popped to US$0.7620, from US$0.7596 early, nearing a nine-month peak of US$0.7723 touched late March.

It received a boost after a survey showed Australian firms across most industries saw improving conditions in March, lifting an index of activity to its highest in eight years.

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The survey reinforced expectations of a steady interest rate outlook, at least in the short-term. Interbank futures imply a less than 50-50 chance of an easing by June.

Last week, the Reserve Bank of Australia (RBA) kept its cash rate at a record low 2 per cent for a 10th straight policy meeting, citing evidence of continued growth at home.

The bullish mood was enhanced by a rally in the price of iron ore, Australia's top export earner, which bounced nearly 5 per cent on Monday.

The yen's loss of momentum after its sharp gains in recent gains also helped the Aussie.

The Aussie gained 0.5 per cent in the session to 82.37 yen, moving away from a one-month low of 80.64.

Likewise, the New Zealand dollar climbed to 74.30 yen, having touched 73.16 last week, a level unseen since August last year.

The New Zealand dollar was steady at US$0.6869, but up from a low of US$0.6792 on Monday.

ANZ Bank said the failure to push any lower "suggests it's heading for a test higher as markets have lost faith in the US$ strength story".

It noted the New Zealand economy remains solid and there were higher yields on offer, providing additional NZD support. It expected the kiwi to trade in a range of US$0.6800 to US$0.6950.

New Zealand government bonds eased, sending yields around three basis points higher across the curve.

BNZ senior market strategist Kymberly Martin said the market will be watching Wednesday's release of food prices as the final piece of data for the first quarter consumer price index.

BNZ is expecting annual inflation to be 0.3 per cent, below the RBNZ's forecast of 0.4 per cent.

"This could be sufficient for the market to increase its pricing of an April cut to more than 50 per cent," she said.

Australian government bond futures were off one-month highs, with the three-year bond contract five ticks lower at 98.160. The 10-year contract fell six ticks to 97.5350, while the 20-year contract shed 3.5 ticks to 96.9700.

REUTERS

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