Australian, New Zealand dollars inch up, bond sale draws strong demand

[SYDNEY] The Australian and New Zealand dollars inched ahead on Monday as investors found cheer in slowing death rates in some of the countries worst hit by the coronavirus, lifting share markets across Asia.

The Aussie nudged up 0.4 per cent to US$0.6020 having been as low as US$0.5980 on Friday, which now acts as support. Resistance stands at US$0.6075 and the recent top of US$0.6215.

The kiwi dollar held at US$0.5876 and off a low of US$0.5844, with resistance lined up at US$0.5925 and US$0.6067.

Dealers cited reports of a slowdown in the number of new deaths in France, Spain and Italy, for the better mood.

Yet officials in the United States warned of more deaths ahead, while British Prime Minister Boris Johnson was admitted to hospital with the disease and media reported Japanese Prime Minister Shinzo Abe would soon declare a state of emergency.

In Australia, the government sounded hopeful the outbreak was coming under control, though analysts warn it will still cause a sharp contraction in economic activity this quarter.

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The Reserve Bank of Australia (RBA) has already cut rates to 0.25 per cent and launched a campaign of bond buying aimed at keeping three-year yields around the cash rate.

The bank holds its monthly policy meeting on Tuesday and is expected to stand pat for now as it assesses the impact of its measures and of the government's massive spending plans.

The government intends to sell around A$5 billion of new bonds every week in a huge ramp up of borrowing.

Early signs are demand is strong with a A$2 billion tender on Monday drawing bids worth 4.7 times more than the amount on offer. While there were 68 bids only two were successful, suggesting the buyers paid top dollar for the short-term paper.

"The front end remains anchored and will do so with the target rate of the 3-year at around 0.25 per cent proving very effective," said Martin Whetton, head of bond strategy at CBA.

"We expect the 3-year to hold around 0.25 per cent over the year, with a risk of a drift lower towards 0.1 per cent," he added. "Our existing forecast of the ACGB 10Y at around 0.5 per cent remains current, but we note the long end volatility will see the market shift around."

Yields on three-year paper stood at 0.26 per cent on Monday, while 10-year yields held at 0.77 per cent having briefly spiked as high as 1.54 per cent during the global market turmoil of mid-March.

The 10-year futures contract was steady at 99.2550.

REUTERS