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Australia, NZ dollars rise as risk appetite revives, bonds slump
[SYDNEY] The Australian and New Zealand dollars gained on Thursday, mirroring a surprise rebound in riskier assets, as investors latched on to the idea that a Donald Trump presidency could spur US economic growth.
The Australian dollar added 0.3 per cent to US$0.7658, after falling 1.7 per cent on Wednesday as financial markets were shocked by Mr Trump's defeat of Democrat Hillary Clinton.
The Aussie was still below a high of US$0.7772 hit early Wednesday when markets were priced for a Clinton win.
Markets had viewed Mrs Clinton as the status quo candidate while there was nervousness about Trump's policies on geopolitics and immigration.
"Over time Donald Trump's policies would, as announced, be highly stimulatory, expansionary and, ultimately, inflationary,"said Stephen Halmarick, chief economist at Colonial First State Global Asset Management.
"If he was able to get his election policies through Congress, we are likely to see a near-term acceleration in the pace of growth of the US economy and a surge higher in the dollar."
Mr Trump's key policy priorities include generous tax cuts and higher infrastructure and defence spending.
Both the Aussie and its New Zealand cousin are among star performers this year, up five per cent and seven per cent respectively, largely thanks to carry trades where investors borrow in safer assets such as the yen or the euro to invest in high-yielding currencies.
The carry trade came back with a vengeance late on Wednesday with the Aussie rebounding to 80.77 yen having been down as deep as 76.73 at one stage. It made similar stellar recoveries on the Swiss franc and euro.
Australian government bond futures slumped, in line with US Treasuries.
Investors again revised the outlook for US interest rates after Mr Trump's victory, with the probability of a December rate hike by the Federal Reserve going from as low as 30 per cent to as high as 80 per cent.
Futures plunged to six month lows, with the three-year bond contract down 14 ticks at 98.30. The 10-year contract dived 25 ticks to 97.56, the largest daily drop since mid-2013.
The New Zealand dollar rose 0.2 per cent to $0.7291, only just above Wednesday's trough of US$0.7265.
The Reserve Bank of New Zealand cut interest rates as widely expected to a record-low 1.75 per cent, but added that further easing may not be needed. "The FX market interpreted the statement hawkishly," said Imre Speizer, senior market strategist at Westpac NZ.
"The statement suggests a period of policy stability ahead. However given the US election result impact, the pair may struggle beyond US$0.7400 on the day."
New Zealand government bonds tumbled, with yields jumping 15 to 23 basis points across the curve.