Australia, NZ dollars buoyed by commodities, carry trades

[SYDNEY] The Australian and New Zealand dollars edged up on Wednesday as less volatile markets, rising equities and bubbly commodities underpinned sentiment for carry trades.

The Australian dollar edged up to US$0.7428, from US$0.7400 in early trade, having bounced from a five-month trough of US$0.7311 touched on Monday.

The Aussie is still down three cents in the two weeks since Republican Donald Trump won the U.S. Presidency and triggered a jump in inflation wagers and Treasury yields.

A sustained break above US$0.7420, the 23.6 per cent retracement of this month's move would test US$0.7488.

"An increase in prices of iron ore and coal futures supported the Aussie with equities also higher," said Elias Haddad, a senior currency strategist at Commonwealth Bank of Australia.

Iron ore futures traded in China jumped over 8 per cent on Wednesday alone.

The strength in commodities helped offset softness in domestic construction, which showed a surprisingly steep drop of 4.9 per cent in the third quarter.

Scott Haslem, an economist at UBS, noted construction spending sank over 11 per cent in the year to September, the biggest drop in 15 years.

On the face of it, the drop would take a chunk out of gross domestic product (GDP) in the third quarter. "Today's data puts Q3 GDP on track for 'flat', much below our current 0.5 per cent growth forecast," he cautioned.

Underpinning the Antipodean currencies was a return of carry trades where the market borrows at low rates in yen to buy higher yielding assets such as the Aussie and Kiwi.

The Kiwi touched its highest in 10 months at 78.48 yen , having bounced five yen since the US elections.

Its Aussie cousin rose to 82.47 yen, nearing its highest since April.

The New Zealand dollar edged up to US$0.7072, away from Monday's low of US$0.6983. It remains well below the November peak of US$0.7403 and faces stiff chart resistance around US$0.7145 in the near term.

With equities in demand, New Zealand government bonds fell, sending yields as much as 6 basis points higher.

Australian government bond futures eased, with the three-year bond contract down 2 ticks at 98.130. The 10-year contract shed 2.5 ticks to 97.3400, while the 20-year contract was steady at 96.7300.

REUTERS