Australia, NZ dollars edge up on commodity, yield attraction

[SYDNEY] The Australian and New Zealand dollars firmed against their US counterpart on Monday, as rising commodity prices and relatively high bond yields underpinned sentiment for carry trades.

The Australian dollar edged up in light trading to US$0.7456, from a low of US$0.7400 on Friday, and away from a five-month trough of US$0.7311 touched last week.

Initial resistance was found at US$0.7489, the 38.2 per cent retracement of the US$0.7778-US$0.7311 decline. Strong support was found at US$0.7365-70 and a break would signal a test to US$0.7286.

Helping the Aussie were buoyant commodity prices, particularly iron ore, Australia's top export earner. Iron ore futures traded in China extended last week's hefty gains with a 3.5 per cent rise. Analysts, however, warned such strength might not be sustained.

"Ultimately, we expect the prices of Australia's key commodities to fall because demand conditions should ease in China early next year," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

Also helping was carry demand, where investors borrow at low rates in yen to buy higher yielding assets such as the Aussie and the New Zealand dollar.

The Aussie fell to 83.31 yen, from 83.94 in early trade, but that was still near a seven-month peak touched on Friday. It rose 3.2 per cent last week.

The kiwi slipped to 79.09 yen, from 79.48, having touched an 11-month peak of 79.76 on Friday.

Against its US peer, the New Zealand dollar bounced to US$0.7057 having been as low as US$0.6970 last week. "The stalled US dollar allows (New Zealand's) strong economic fundamentals to come to the fore," Imre Speizer, market strategist at Westpac, said in a research note, adding that the currency was targeting US$0.7070.

Domestic indicators have been running hot recently with consumer spending, employment and migration all beating forecasts.

New Zealand government bonds gained, sending yields 6 basis points lower at the long end of the curve.

Australian government bond futures bounced from multi-month lows, with the three-year bond contract up 4 ticks at 98.110. The 10-year contract rose 6.5 ticks to 97.3400, while the 20-year contract added 6 ticks to 96.7350.

Australian 10-year cash bond yields dipped to 2.76 per cent, from 2.83 per cent last week which were the highest since early January.

REUTERS