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Australian, New Zealand dollars back to earth as bulls bail out

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The Australian and New Zealand dollars nursed losses on Friday as a fresh bout of Brexit uncertainty undermined risk sentiment and bulls bailed on long positions after a failure to breach key chart barriers.

[SYDNEY] The Australian and New Zealand dollars nursed losses on Friday as a fresh bout of Brexit uncertainty undermined risk sentiment and bulls bailed on long positions after a failure to breach key chart barriers.

The Aussie slipped to US$0.6819, leaving it down 0.6 per cent on the week, having backed away from tough resistance at the September top of US$0.6895. Support now comes in at US$0.6810 and US$0.6774.

The kiwi dollar eased to US$0.6376, having also failed to clear its September high of US$0.6450. Near-term support lies at US$0.6354.

Investors are looking ahead to the US Federal Reserve's policy meeting on Oct 30 when it is considered almost certain to cut rates a quarter point, and may leave the door open to further easing if needed.

Such a move would pile pressure on the Reserve Bank of New Zealand (RBNZ) to ease at its meeting on Nov 13 or risk an unwelcome increase in the kiwi.

Futures imply around an 85 per cent chance of a quarter-point cut to 0.75 per cent, with a further move to 0.5 per cent seen likely next year.

The Reserve Bank of Australia (RBA) has already got to 0.75 per cent following three cuts since May and is thus considered likely to sit out a move at its meeting on Nov 5.

Futures are pricing in a slim 18 per cent chance of a quarter-point cut, though that rises to round 54 per cent for December and 86 per cent for February next year.

Those odds might shift if inflation data due next Wednesday prove as soft as many expect.

"This would ensure that rates markets maintain a reasonable risk of another RBA easing before year end, capping A$ rallies," said Westpac senior forex analysts, Sean Callow.

"Overall, a decent risk environment should support AUD/USD on dips below US$0.6800," he added. "But again US$0.6900 has not given way and speculative short A$ positions are proving persistent."

The dovish outlook is helping keep bond yields not far from record lows. Three-year bond yields stand at 0.70 per cent, compared to 1.83 per cent at the start of this year.

The three-year bond future added 2.5 ticks on Friday to stand at 99.305, while the 10-year contract gained 3 ticks to 98.9450.

New Zealand government bonds also rallied with yields falling almost 6 basis points at the long end of the curve.

REUTERS

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