Australia, NZ dollars lose to yen in safety bid

[SYDNEY] The Australian and New Zealand dollars were under pressure on Wednesday as a flare-up in tensions over North Korea sparked a shift to currencies considered safer harbours, most notably the Japanese yen.

The Aussie dollar recoiled 0.5 per cent on its US counterpart to US$0.7872 and touched a three-week trough at one point. Against the yen, the Aussie sank 0.9 per cent to 86.48 yen, the lowest in a month.

The yen tends to benefit during times of geopolitical or financial stress as Japan is the world's biggest creditor nation and there is an assumption investors there will repatriate funds should a crisis eventuate.

In this case, the trigger was North Korea saying it was considering plans for a missile strike on the US Guam, just hours after President Donald Trump warned that any threat to the United States would be met with "fire and fury".

The flight from risk overshadowed recent sharp gains in prices for some of Australia's key commodity exports including iron ore and coal. Iron ore for delivery to China's Qingdao port reached its highest since April on Monday.

The rally in prices led Westpac to revise up its outlook for the Aussie in coming months and it now tips levels of US$0.7800 in September and US$0.7600 by year-end. Previously it had seen the currency down at US$0.7300 by Christmas.

The New Zealand dollar eased to US$0.7318, and further away from its recent peak of US$0.7557. It fell 0.6 per cent on the yen to 80.39 and touched its lowest since mid-June.

The kiwi has been under added fire ahead of a policy statement by the Reserve Bank of New Zealand (RBNZ) on Thursday at which it is expected to show its displeasure against the strength of the currency. "The NZD is again at the bottom of the leaderboard as traders anticipate a more dovish tone from the RBNZ," said Jason Wong, senior markets strategist at BNZ.

The central bank is all but certain to leave cash rates at a record low 1.75 per cent and analysts suspect policymakers will reinforce the need for low rates for longer given sagging inflation.

In particular, the RBNZ could push out its forecast for a tightening from the current timing of early 2020.

Australian government bonds were having a subdued session, with the three-year bond contract unchanged at 98.060. The 10-year contract eased a single tick to 98.3650.

New Zealand government bonds edged up, sending yields 1 basis points lower at the long end of the curve.

REUTERS