Australian dollar near 6-week high, New Zealand dollar lags on easing talk

[BENGALURU] The Australian and New Zealand dollars found support on Tuesday as both countries made considerable progress in containing the coronavirus, allowing some gradual steps to start reopening their hard-hit economies.

The Australian dollar was almost back to where it was in early March before market panic at the risks from the virus saw it collapse as much as 10 US cents to 17-year lows.

The Aussie was last at US$0.6457, having climbed 1 per cent overnight to a six-week top of US$0.6472. That cleared the previous April peak of US$0.6445 and left it a long way from the March trough of US$0.5510.

The kiwi lagged a little, in part as speculation about further policy easing pushed bond yields to record lows. The kiwi stood at $0.6028, well above its March low of US$0.5469 but short of the US$0.6300 level held in early March.

Both currencies are barometers of risk and have been regaining ground as countries around the world tentatively ease lockdown restrictions as infections slow.

Australia's most populous state said on Tuesday it will relax some restrictions on movement as beaches reopened amid hopes that widespread medical testing will help sustain a decline in new cases of the coronavirus.

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New Zealanders queued for burgers and fries after they were freed from a month-long lockdown, which Prime Minister Jacinda Ardern credited with eliminating domestic transmission of the disease.

"Lifting lockdown makes a huge difference," said Jarrod Kerr, chief economist at Kiwibank. "With 400,000 New Zealanders expected back at work, our road to recovery begins."

Still, the economic damage already done combined with the collapse of oil prices meant inflation was likely to turn negative this quarter.

"The deflationary threat will force policymakers to keep their foot firmly on the accelerator," said Mr Kerr.

The Reserve Bank of New Zealand (RBNZ) has already cut rates to 0.25 per cent and launched a major bond buying programME, and has even mused about going further.

As a result, Westpac's chief economist for New Zealand, Dominick Stephens, now expects the RBNZ will cut its cash rate (OCR) by 75 basis points to -0.5 per cent in November.

"Inflation will drop well below 1 per cent unless the Reserve Bank and Government act very vigorously to stimulate the economy," he warned. "We expect that the RBNZ will signal either its intent or its willingness to move to a negative OCR at the August policy statement."

Government bond yields had already been declining steadily as the RBNZ bought debt in the market and the 10-year yield hit a fresh all-time low on Tuesday at 0.753 per cent.

REUTERS