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Australian, New Zealand dollars get reprieve as US dollar faces trouble of its own

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The Australian and New Zealand dollars sailed into choppy seas on Tuesday as sellers swamped Asian equity markets, but their US counterpart faced uncertainty of its own over interest rates.

[SYDNEY] The Australian and New Zealand dollars sailed into choppy seas on Tuesday as sellers swamped Asian equity markets, but their US counterpart faced uncertainty of its own over interest rates.

As a result the Aussie was actually a shade firmer on the US dollar at US$0.7189, but lost ground on the safe-haven yen to 80.83.

The US currency has been undermined by speculation the Federal Reserve will use a policy meeting on Wednesday to signal that further hikes in rates will be conditional on economic fortunes.

There is also a chance President Donald Trump could force a partial shutdown of the US government on Friday if Congress does not approve funding for his proposed US-Mexico border wall.

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Market voices on:

"We believe the risk is the US dollar ends the week lower if the short-term funding bill is not approved and if the Fed changes its forward guidance from expecting "further gradual increases" to describing the Fed funds rate as "close to neutral"," said CBA currency strategist Richard Grace.

At home, the Reserve Bank of Australia (RBA) reiterated that the next move in rates was likely to be upward but there was no strong case for a move anytime soon given downside risks to consumption and the housing market.

"The sentiment in these minutes is somewhat less confident about the economy," said Westpac chief economist Bill Evans.

"Taking into account the attention given to the credit, housing, consumer and external risks, these minutes should be interpreted more 'dovishly'," he argued.

The debt market seemed to agree, with three-year bond futures up 4 ticks at 98.105 after hitting its highest since November last year. It was now within a whisker of major resistance at 98.110 and a break would be technically bullish.

Yields on the cash 10-year bond were near their lowest since June 2017 at 2.419 per cent, having fallen over 40 basis points in the past month or so.

Over in New Zealand, the kiwi firmed to US$0.6845, buoyed in part by improved business confidence data.

An ANZ bank survey showed that firms turned a lot less pessimistic on the economy in December, while becoming more upbeat on their own prospects.

The next major risk for the kiwi was an auction for dairy, New Zealand's main goods export. Futures markets suggested prices for whole milk powder, the most widely traded product, would increase 3 per cent, though global supply has been outpacing demand in recent months.

New Zealand government bonds gained, sending yields 2.5 basis points lower along most of the curve. 

REUTERS