AUD, NZD advance on yen as yields attract

[SYDNEY] The Australian and New Zealand dollars notched broad gains on Monday as rising bond yields at home sucked investor funds away from low-yielding currencies, notably the Japanese yen.

The Australian dollar firmed 0.3 per cent to US$0.8028, but still faces resistance above US$0.8050 having repeatedly failed to sustain breaks higher.

The move was largely a function of demand against the yen where the Aussie had climbed 0.6 per cent to 89.24 and was challenging July's double top at 89.33 and 89.42.

A breach there would open the way to a peak from December 2015, when it got as far as 90.71.

The kiwi has likewise surged over three yen in just six sessions to touch 81.50 and still has room to make up to reach the July peak of 83.91.

Yields on Australian 10-year bonds have climbed almost 20 basis points in just the past seven sessions to reach 2.80 per cent, their highest since March. The shift has even outpaced the rise in US Treasury yields, fattening the Aussie's rate advantage.

That is far above the paltry 0.02 per cent paid by Japan's 10-year paper, which is unlikely to change anytime soon given the Bank of Japan is widely expected to reaffirm its massive asset buying campaign at a policy meeting on Thursday.

Australian yields were driven higher in part by surprisingly strong job figures last week that led markets to price in a greater chance of a hike in interest rates by the Reserve Bank of Australia (RBA), although not for some months yet.

That will focus attention on speeches by top central bank officials on Wednesday and Thursday for any guidance on the policy outlook.

So far, the bank has played down any chance of a tightening this year and a repeat performance could support bonds and undermine the Aussie.

The New Zealand dollar also gained almost 0.5 per cent on its US counterpart to reach US$0.7325. Chart resistance at US$0.7330 could be hard to overcome ahead of an election on Sept 23.

"Election uncertainty will continue to weigh on the NZD until the weekend provides more clarity (perhaps)," said Con Williams, economist at ANZ.

The fiercely-fought race to the polls has been giving investors jitters as uncertainty reigned over what a centre-left Labour Party government might bring after almost a decade of the centre-right National Party holding power.

Local events include a dairy auction early Wednesday and second-quarter gross domestic product figures on Thursday.

New Zealand government bonds eased, sending yields 6 basis points higher along most of the curve.

Australian government bond futures slipped, with the three-year bond contract down 5 ticks at 97.810. The 10-year contract lost 5.75 ticks to 97.1700.

REUTERS