Australia, New Zealand dollars try for firmer finish to soggy week

[SYDNEY] The Australian and New Zealand dollars were looking to end a soft week on a firmer note on Friday as rapid progress on coronavirus vaccinations domestically augured well for an economic rebound in coming months.

The market mood was helped by news that US President Joe Biden had a wide-ranging call with his Chinese counterpart Xi Jinping on Thursday, offering hope for some thawing in relations between the super powers.

The Aussie edged up 0.2 per cent to US$0.7384 on the news, having again found support around US$0.7345. It was still down 0.9 per cent on the week, but well above key support at US$0.7290 and the recent 10-month trough of US$0.7107.

The kiwi dollar was off only 0.4 per cent for the week at US$0.7118, after drawing solid bids around US$0.7076. That kept it within striking distance of the recent three-month top of US$0.7170, and well above the August trough at US$0.6810.

While Australia is still reporting rising coronavirus cases, the share of the population vaccinated has also picked up markedly and should surpass that in the United States in the coming weeks.

"Australia and NZ are getting their vaccination acts together, which should result in a loosening of restrictions,"said Westpac's head of FX strategy Richard Franulovich.

"By contrast, US dollar upside potential into year's end looks increasingly constrained, with 2021H2 growth expectations trickling lower and labour market healing prospects looking less certain."

Much of New Zealand, barring the city of Auckland, has already seen an easing of stay-at home rules and the government has been seeking extra shots from abroad.

"Growth will take a tumble in the September quarter - we could easily see a fall in GDP in the range of between 5-7 per cent,"said Kiwibank chief economist Jarrod Kerr.

"But we expect that NZ will largely be back at alert level 1 by quarter-end and the economy will be in a strong position to rebound strongly in the December quarter, around 8.5 per cent in our view."

Such optimism has seen the market price in around a 96 per cent probability of a quarter-point hike from the Reserve Bank of New Zealand (RBNZ) at its Oct 6 policy meeting, and much the same odds for a further move in November.

The Reserve Bank of Australia (RBA) is still not tipping a rate hike until 2024, even if it has begun slightly trimming its bond buying from this week.

REUTERS