Australia, New Zealand dollars fly to 1-1/2 week highs on risk rally

[SYDNEY] The Australian and New Zealand dollars soared to 1-1/2 week peaks on Monday after strong gains last week as hopes of some resolution in the protracted Sino-US trade war and expectations of expansionary global monetary policy sparked a rally in riskier assets.

The Australian dollar, a liquid risk proxy, climbed to a 1-1/2 week high of US$0.7154, rising for a third day in a row and distancing itself from a recent one-month trough of US$0.7054.

The Aussie rallied 0.7 per cent last week.

The New Zealand dollar fared better as it jumped 1.7 per cent last week with investors wagering on steady cash rates in the country for a long while rather than cuts.

On Monday, the kiwi rose to US$0.6884 for its fifth consecutive session of gains.

Expectation the United States and China would come to an agreement to resolve their year-long trade dispute boosted risk sentiment. The two sides will resume negotiations this week, with US President Donald Trump saying he may extend a March 1 deadline for a deal.

Both parties reported progress in Beijing last week.

Besides, hopes of more reflationary policies from some major central banks also helped.

Data last week showed China's banks made the most new loans on record in January as policymakers tried to jumpstart sluggish investment.

Minutes of the Federal Reserve's last policy meeting, due Wednesday, should provide guidance on the path of rates this year amid talks the bank will keep a much larger balance sheet than previously planned.

Three Fed policymakers last week predicted just one or no rate hike this year after disappointing U.S. retail sales and industrial production data.

Traders will also have one eye on Australian data, with wage figures on Wednesday and employment report on Thursday.

"There is a greater significance attached to these numbers this week, given the 'data dependency' of the RBA's policy outlook," said Deutsche Bank economist Phil Odonaghoe.

The Reserve Bank of Australia (RBA) caught investors off guard this month as it shifted away from its previous tightening bias to put rate cuts back on the table, saying a 'sustained increase' in unemployment could trigger an easing.

"It stands to reason then that the market will be more sensitive to labour market reports through the opening months of 2019 than it has been for some time."

The RBA will release minutes of its first board meeting of the year on Tuesday while Governor Philip Lowe will appear before a parliamentary committee on Friday.

New Zealand government bonds eased, sending yields 1-2 basis points higher at the long-end.

Australian government bond futures slipped, with the three-year bond contract off 2.5 ticks at 98.32. The 10-year contract fell 3 ticks to 97.87.

REUTERS