Australia, New Zealand dollars lose ground as Gulf fighting intensifies

[SYDNEY] The Australian and New Zealand currencies fell on Monday (Jul 13) as intensifying fighting in the Gulf pushed oil prices higher, reviving inflation fears and driving investors into the safety of the US dollar.

US and Iranian forces exchanged heavy missile and drone assaults on the weekend, with Teheran targeting US facilities in states across the Gulf on Sunday and saying it had again closed the vital Strait of Hormuz.

The risk-sensitive Aussie lost 0.3 per cent to US$0.6931, erasing last week’s small gain of 0.2 per cent. Near-term resistance is at US$0.6980 while support is at the 14-day moving average of US$0.6921.

The kiwi dollar slipped 0.2 per cent to US$0.5749. That followed a rally of 1 per cent last week as its central bank raised interest rates for the first time in over three years and markets wagered on more.

Resistance is at a three-week high of US$0.5791. Those declines came in tandem with a jump of 4.3 per cent for Brent crude futures to US$79.23 a barrel on Monday and a retreat in stocks during Asian time.

It is a thin week for Australia’s economic calendar. But the kiwi could find support from a speech by the Reserve Bank of New Zealand’s chief economist Paul Conway on Tuesday where he is expected to talk about the implications of oil shocks and inflation. A quarterly survey of business opinions may also shed some light on firms’ pricing behaviours.

“The speech will provide him an opportunity to affirm Governor Breman’s recent hawkish comments or, alternatively, push back against current market pricing,” said Joseph Capurso, head of foreign exchange at the Commonwealth Bank of Australia.

Swaps now imply a 75 per cent probability that the RBNZ will deliver a follow-up rate hike in September and are fully pricing in two more rate hikes this year.

Those reasons helped New Zealand’s 10-year bond yields rise 2 basis points on Monday to 4.635 per cent, on top of a 14-bp climb last week to their highest since late May.

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That in turn helped flip the spread with Treasuries back to a positive 5 bps, having been as low as negative 7 bps in recent days, providing support to the kiwi.

In contrast, investors suspect the Reserve Bank of Australia could be done hiking after three rate rises to 4.35 per cent, with a further move this year just seen at around 50 per cent. The Aussie lost 0.3 per cent to NZ$1.2026 to hover near a six-week low. REUTERS