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Australia, New Zealand dollars inch up, hope for best on Brexit

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The Australian and New Zealand dollars edged up on Tuesday as markets wagered a white-knuckle vote on the British government's latest Brexit plan would lessen the risk of a "no-deal" divorce, at least for the short term.

[SYDNEY] The Australian and New Zealand dollars edged up on Tuesday as markets wagered a white-knuckle vote on the British government's latest Brexit plan would lessen the risk of a "no-deal" divorce, at least for the short term.

Sentiment was also aided by a fresh round of commitments from Chinese policymakers to stimulate their economy though fiscal and monetary steps.

The Aussie dollar nudged up 0.2 per cent to US$0.7211, having found support at US$0.7175 overnight. Near-term resistance is layered between $0.7220 and US$0.7235.

The kiwi dollar firmed to $0.6831 after finding solid bids just under US$0.6800. Major resistance lies at the recent top of US$0.6843.

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A hurdle looms later on Tuesday when British Prime Minister Theresa May puts her Brexit deal to lawmakers, amid wide expectations it will be voted down.

Investors seem to assume the vote will lead to an extension of the March 29 deadline for leaving the EU, thus offering more time to broker an acceptable deal or even to undertake a second referendum.

"The momentum is with those attempting to stop an economically damaging 'no deal'," said Gavin Friend, a senior market strategist at NAB. "This removes some of the threat to the pound."

"But there's still a nasty tail risk if the slim chance of a general election were realised," he added. "We've previously argued this outcome would solicit the most violent reaction from UK assets. We'd expect the pound to drop 10-15 per cent reasonably quickly against the US dollar."

Such turmoil would tend to lift the safe-haven US dollar broadly and slug both the Aussie and kiwi.

In New Zealand, a survey showed businesses became a little less gloomy over the final quarter of last year, easing fears that firms might go on an investment strike.

A net 17 per cent of those surveyed expected general business conditions to deteriorate over the coming months compared with a hefty 30 per cent in the previous quarter, the New Zealand Institute of Economic Research found.

"A lift on trading activity meant that firms were more open to hiring and investing, and growth looks like it will lift through 2019," said Kiwi Bank senior economist Jeremy Couchman.

"But 2019 has started on an ominous note, with heightened concerns on the global economy," he cautioned. "We still expect the Reserve Bank to keep rates unchanged this year, before gradually hiking well into 2020."

The Reserve Bank of New Zealand's first policy announcement of the year is due on Feb 13, and markets imply scant chance of any change in rates.

In bond markets, Australian three-year futures dipped half a tick to 98.230, while the 10-year contract eased 1.5 ticks to 97.7100.

New Zealand government bonds were likewise little changed.

REUTERS