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Australian, New Zealand dollars outperform as economies escape lockdown

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The Australian and New Zealand dollars gained on the euro on Wednesday as the risk of lockdowns in Europe contrasted with open economies at home, while soft Australian inflation figures supported expectations of near-term policy easing.

[SYDNEY] The Australian and New Zealand dollars gained on the euro on Wednesday as the risk of lockdowns in Europe contrasted with open economies at home, while soft Australian inflation figures supported expectations of near-term policy easing.

The euro dipped to a one-week low of A$1.6531, a long way from its recent top at A$1.6827. The Aussie held steady on its US counterpart at US$0.7129, just short of chart resistance at US$0.7158.

The kiwi dollar was firm at US$0.6700, having touched a five-week high of US$0.6724 overnight.

The euro had taken a knock on reports France was considering locking down for a month as new coronavirus cases hit records across the continent.

That comes as Australia's second largest city, Melbourne, re-opens after months of lockdown have driven new cases down into single figures and left the entire country open for business.

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"The economy is recovering from the lows of the Covid-19 recession. The recovery will be long and uneven, but it is clearly underway," said CBA's head of global economics Stephen Halmarick.

"Bottom-line is that Australia should continue to outperform most other major OECD economies in recovering."

To support activity, Mr Halmarick expected the Reserve Bank of Australia (RBA) would cut interest rates to 0.1 per cent at its November policy meeting next week and commit to buying around A$100 billion (S$97 billion) in five- to 10-year bonds.

There was ample scope for such quantitative easing given data out on Wednesday showed consumer price inflation ticked up to just 0.7 per cent in the third quarter, far below the RBA's target band of 2-3 per cent.

Core inflation was not much higher at an annual 1.2 per cent and the central bank itself has forecast only a slight pick up to around 1.5 per cent by the middle of 2022.

The subdued report helped lift 10-year bond futures 2 ticks to 99.220, implying an yield of 0.78 per cent and bang in line with US Treasury yields.

Three-year bond futures held at 99.840, with the market all but certain the RBA will lower its yield target to 0.1 per cent next week.

REUTERS

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