Australian, New Zealand dollars hit by virus unease, China trade tensions

[SYDNEY] The Australian and New Zealand dollars slipped on Tuesday as sentiment was soured by worries of a second wave of coronavirus infections, while Chinese restrictions on Australian beef exports added a frisson of trade friction.

The Aussie was off 0.6 per cent at US$0.6445 having again failed to clear resistance in the US$0.6560/70 zone on Monday. It now risks testing support around US$0.6373/78.

The kiwi dollar was pinned at US$0.6065 after shedding 1.1 per cent on Monday as it also failed to break resistance in the US$0.6157/6176 area. It now has support at US$0.6040 and US$0.5995.

The Aussie was weighed in part by reports China had suspended shipments from four Australian abattoirs due to "technical" issues.

Traders said the market was concerned Beijing was trying to pressure Australia on broader trade disputes including over barley and steel.

At home, the market was reminded again of the costs of the lockdowns by Treasurer Josh Frydenberg, who said the budget was in deficit to the tune of A$22.4 billion (S$20.5 billion) by the end of March, when restrictions had only just been put in place.

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The government's huge borrowing needs have already seen a rush of issuance, with the Australian Office of Financial Management (AOFM) set to sell a new 2030 bond by syndication on Wednesday. It carries a coupon of 1 per cent and was indicated to price at 7 to 10 basis points above implied 10-year bond yields.

"Current expectations would be for the AOFM to issue well over A$10 billion," said analysts at Westpac. "It will provide another test of the market's resilience in front of a large AOFM issuance programme at a time that RBA support has declined."

The future was steady at 99.0400 on Tuesday, implying an yield of 0.96 per cent, and just above support at 99.0200. The three-year contract was also unchanged at 99.765, implying an yield of 0.235 per cent.

The Reserve Bank of Australia (RBA) has been successful in holding three-year yields near their target of 0.25 per cent, but have also seemed content to let longer-term yields edge higher by paring back purchases in the market. It skipped on a buying operation on Monday.

"The market has already made a concession for the new issuance, with the curve bear steepening, supported by rising US yields," added Westpac.

"With the AU-US 10-year spread well behaved below 30 basis points, there are positive signs that the new bond will be well supported."

REUTERS