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Australian, New Zealand dollars set for strong weekly gains, bonds see a sell-off

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The Australian dollar hovered near a one-month high on Friday while its New Zealand cousin held on to recent gains as positive US data and some optimism on coming Sino-US trade talks lured investors into risk assets.

[SYDNEY] The Australian dollar hovered near a one-month high on Friday while its New Zealand cousin held on to recent gains as positive US data and some optimism on coming Sino-US trade talks lured investors into risk assets.

Safe haven Australian and New Zealand sovereign bonds were heavily sold off, sending yields to multi-week highs across the curve.

The Australian dollar was at US$0.6809 at 0154 GMT after breaching overnight key chart resistance of US$0.6800 for the first time since Aug 1.

For the weeks, the Aussie was up 1.1 per cent. If that gain is sustained, the currency will have its best weekly performance since late June.

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The New Zealand dollar held at US$0.6376 after hitting a 1-1/2 week top of US$0.6395 overnight. For the week, the kiwi is up nearly 1 per cent, on track for its best week since early July.

Investors cheered news on Thursday that the United States and China have agreed to hold high-level talks early in October, raising hopes for substantial progress in de-escalating the long, bitter trade conflict between the two.

"Although investors have become increasingly doubtful about President Trump's commitment to reaching a trade deal with China, any sign of even a temporary de-escalation is welcome by the markets in a deteriorating global economic environment," Raffi Boyadjian, senior investment analyst at XM said in a client note.

Risk sentiment was further improved by upbeat US private payrolls which increased at the fastest pace in four months in August.

Separate figures showed the US services industry rebounded last month and had its fastest expansion since February.

Investors will have their eyes fixed on non-farm payrolls figures, due later on Friday, that are expected to show an increase of 158,000 and the unemployment rate steady at 3.7 per cent.

Still, some expect market volatility and uncertainties to dominate sentiment for some time to come.

"With any trade resolution unlikely soon, the erratic markets of August may persist into October," said Bob Baur, chief economist for Principal Global Investors in the United States.

"If that's the case, US Treasury yields could re-test the lows of 2012 and 2016. Beyond that, government bond yields are surely tracing out a trough that will hold into 2021."

Already yields on government bonds around the world have slid sharply to multi-year or even record lows on expectations of easier monetary policy globally.

Treasury yields rose overnight, also helped by a wave of corporate debt supply. That together with a better tone on trade boosted antipodean yields.

In New Zealand, yields on government bonds gained 5-7 basis points on the long-end of the curve.

Australian government bond futures slipped to multi-week lows, sending yields higher. The three-year bond contract fell 6.5 ticks to 99.185 while the 10-year contract was off 9.5 ticks to 98.93. 

REUTERS