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Australian, New Zealand dollars backtrack on Brexit woes, resistance intact

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The Australian and New Zealand dollars backed away from major resistance on Wednesday as the latest twist in the Brexit saga tempered risk appetites globally, while domestic catalysts were sorely lacking.

[SYDNEY] The Australian and New Zealand dollars backed away from major resistance on Wednesday as the latest twist in the Brexit saga tempered risk appetites globally, while domestic catalysts were sorely lacking.

The Aussie eased to US$0.6855, from a five-week top of US$0.6883, having failed to break a tough chart barrier at the September high of US$0.6895.

Likewise, the kiwi dollar backtracked to US$0.6409 from a peak of US$0.6436, shying away from its September top of US$0.6450.

"Technically both antipodean currencies have room to move higher with the AUD 200-day moving average at around US$0.6970 a key technical resistance, while the US$0.6450 mark is the near term challenge for the NZD," said Rodrigo Catril, a senior FX strategist at NAB.

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Both currencies had faded when British Prime Minister Boris Johnson lost a vote to push through his Brexit withdrawal plan, leaving it up to the rest of the European Union to agree on another extension of the negotiations.

Analysts were now waiting to see how long the extension would be, with talk of anything from a few days to three months, and whether Mr Johnson would try and call a general election as threatened.

The added uncertainty saw the pound ease off to A$1.8749 , having hit a 40-month high of A$1.9094 just a few days ago.

"We can probably say that downside GBP risk is still limited given a hard Brexit looks unlikely, but on the upside further gains may take a bit longer to play out," said NAB's Catril.

"There are still plenty of potential Brexit twists ahead."

The latest Brexit fracas helped Australian government bond futures recoup a little of their recent hefty losses. The three-year bond contract added 3 ticks to 99.250, while the 10-year contract firmed 4.5 ticks to 98.8750.

For Australian markets, the next major hurdle is not until Oct 30 when inflation figures for the September quarter are released. Another soft reading is expected, but a very low result could rekindle speculation about a rate cut in November.

Current market pricing shows only a 16 per cent probability of a quarter-point cut to 0.5 per cent at the Reserve Bank of Australia's (RBA) policy meeting on Nov 5.

A December move is put at a 50-50 chance and an easing is fully priced in by April.

Futures see a much greater chance the Reserve Bank of New Zealand (RBNZ) will ease at its meeting on Nov 13, in part because there is then a big gap to the next meeting on Feb 12. 

REUTERS