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Australian, New Zealand dollars near 2-1/2 week highs on risk-on rally

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The Australian and New Zealand dollars held near 2-1/2 week highs on Monday as risk assets came back in vogue amid expectations policymakers around the world will take measures to support slowing economic growth.

[SYDNEY] The Australian and New Zealand dollars held near 2-1/2 week highs on Monday as risk assets came back in vogue amid expectations policymakers around the world will take measures to support slowing economic growth.

Three developments on Friday gave the antipodean currencies a leg-up. First, Beijing announced a new round of trade talks with Washington. Then, China aggressively eased monetary policy, slashing bank reserve requirements to prop up the country's economy.

And investors got more to cheer about when US Federal Reserve chair Jerome Powell said he would be patient and flexible on interest rate hikes.

These proved a much-needed tonic for global shares and sent the risk-sensitive Australian dollar to US$0.7127, the highest since mid-December. The currency was last at US$0.7120.

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The Aussie and kiwi went into a tailspin last week as whispers of a possible recession in the United States grew louder, making some investors start pricing in a cut in the Fed funds rate in 2019.

Uncertainties stemming from a Sino-US trade war also were stone in the shoe for markets after disappointing manufacturing data readings in both countries.

The worries sent the Aussie to near-decade lows of US$0.6715 Thursday morning in a wild ride that included a computer-driven flash crash.

The currency shed all of those losses the following day and finished last week about 1 percent higher, although analysts remain cautious.

"The Aussie's short-term momentum might be to the topside but the risks that drove the local currency to ten-year lows remain," Steven Dooley, currency strategist at Western Union Business Solutions, said in a note on Monday.

"In particular, any further slowdown in US or Chinese manufacturing could pressure the AUD."

The New Zealand dollar held at US$0.6738, not far from Friday's 2-1/2 week top of US$0.6751.

The kiwi ended last week 0.5 per cent higher, led by a late risk rally on Friday.

New Zealand government bonds were barely changed.

Australian government bond futures eased, with the three-year bond contract off 4 ticks at 98.215. The 10-year contract slipped 5.5 ticks to 97.7100.

REUTERS