Australia, NZ dollars off 3-week highs as USD gains

[SYDNEY] The Australian and New Zealand dollars drifted away from three-week peaks as the greenback strengthened on signs of potential inflationary pressure in US December jobs reports.

The Australian dollar held at US$0.7322 versus a high of US$0.7355 touched on Friday. It is up 1.7 per cent in January so far, starting the new year on a strong footing after three straight monthly declines.

Analysts were circumspect about further gains, despite robust data from China, Australia's No.1 trading partner.

"Encouraging Chinese and US economic activity bode well for base metal prices and the AUD. But broad-based USD strength will curtail AUD/USD upside," said Elias Haddad, senior currency strategist at Commonwealth Bank.

The US dollar is hovering near 14-year highs against a basket of currencies as expectations of faster interest rates hikes by the Federal Reserve have sent Treasury yields soaring.

Locally, traders will watch out for November retail sales figures due on Tuesday for further clues to the health of the Australian economy.

While recent data has pointed to a pick-up in activity, other indicators have been mixed.

Data out on Monday showed approvals to build new homes bounced in November, but did not fully reverse the sharp declines of the last three months.

Approvals rose 7 per cent in November from a month earlier, compared with estimates of a 5 per cent increase. Most of the gain come from apartment blocks.

"Now investors and builders need to do more research to ensure that the projects they are interested in remain viable with competing projects," said Savanth Sebastian, senior economist at CommSec.

"There is certainly potential for indigestion in certain towns and regions as new projects are completed and the stock is absorbed." The New Zealand dollar inched 0.2 per cent higher to US$0.7325.

A dearth of domestic data has seen the kiwi move at the whim of the US dollar in recent days.

The Reserve Bank of New Zealand holds its next policy meeting on Feb 9 and is considered certain to keep its official cash rate at 1.75 per cent, with the market wagering it will remain there for much of the coming year.

New Zealand government bonds eased, sending yields up about 5 basis points across the curve.

Australian government bond futures slipped too, with the three-year bond contract down 5 ticks at 97.970. The 10-year contract was off 6.5 ticks at 97.215.

REUTERS