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Australia, NZ dollars scale 10mth peaks as oil bounce spurs risk-on mood
[SYDNEY] The Australian and New Zealand dollars scaled 10-month peaks on Tuesday after a sudden reversal higher in oil prices boosted risk appetite, sending the yen and government bonds lower.
The Australian dollar climbed to US$0.7784, its highest since June, having bounced two US cents since hitting a low earlier this month. It traded at US$0.7774 with next major resistance found at US$0.7849. A break would target the May 2015 peak of US$0.8164.
The Aussie is up nearly 7 per cent this year, largely due to ultra-loose policies in Japan and Europe and a cautious US Federal Reserve which have boosted the appeal of higher-yielding currencies.
"It's game on for the Aussie. We may see the Aussie pushing through the $0.7800 level," said Stephen Innes, senior trader at FX and CFD firm OANDA Australia and Asia Pacific.
"This is looking probable and will certainly give the Reserve Bank of Australia (RBA) some cause for thought," he added.
Indeed, in minutes of its April 5 policy meeting, the RBA cautioned that a rising Aussie could tilt the economy off balance.
It also reiterated that low inflation would provide scope to ease further if needed.
Yet, interbank futures only imply one-in-three chance of a cut by July given the recent run of domestic data has been largely upbeat. The RBA kept rates at a record low 2.0 per cent for an 11th month in April.
The Aussie and kiwi dollars bounced against a soggy yen, while the euro and pound pulled close to multi-month lows.
The New Zealand dollar sped up to a peak of US$0.6995, benefiting from global "risk on" sentiment as oil prices stabilize, said Stuart Ive of OM Financial Ltd. It last traded at US$0.6981, with resistance at US$0.7040.
"It really all boils down to oil's lack of momentum on the downside," he said.
"The world is suddenly a better place. Markets have shrugged off Doha and moved on."
Mr Ive noted that the Kiwi could benefit further if a coming GlobalDairyTrade auction shows an ongoing improvement in global milk prices.
New Zealand government bonds eased, sending yields 3.5 basis points higher at the short end and two basis points higher at the long end.
Australian government bond futures dipped, with the three-year bond contract off six ticks at 98.030. The 10-year contract fell 7.5 ticks to 7.4350, while the 20-year contract shed six ticks to 96.8800.
The spread between two-year US Treasury bond yields and those of its Australian counterpart narrowed to 127 basis points. It widened to 130 basis points late last week, a level not seen since July.