Australia, NZ dollars carried higher by global growth tide

[SYDNEY] The Australian and New Zealand dollars were breaking higher on Wednesday as signs of an accelerating global economy underpinned currencies leveraged to trade flows and commodity prices.

The Aussie pushed to a two-week top of US$0.7675, having finally cleared resistance at US$0.7668. The break opens the way to US$0.7745 and a return to where it was trading before a sharp drop in mid-March.

The kiwi dollar reached US$0.7063 and was challenging resistance at US$0.7070. The next major barrier is US$0.7100, and a breach could see it fill a gap up to US$0.7165.

A string of strong March manufacturing surveys from across the globe had shown rising demand, widespread supply shortages and higher prices for goods as economies learned to live with coronavirus curbs.

The International Monetary Fund raised its forecast on Tuesday for global growth this year to 6 per cent, a rate unseen since the 1970s, while also lifting its outlook for Australia.

Chinese steel prices hit a record high amid strong demand and constrained supply, in turn supporting prices for iron ore, Australia's biggest export earner.

In New Zealand, ANZ reported its commodity index surged to an all-time peak in March on the back of a sharp rise in dairy prices.

"AUD/USD remains slightly undervalued relative to commodity prices in our view," said analysts at CBA. "We expect AUD to lift closer to its fair value of US$0.8300."

Bonds were also faring well as US Treasury yields came off their recent highs and the Reserve Bank of Australia (RBA) re-committed to keeping rates near zero out to 2024.

Yields on 10-year bonds were down at 1.71 per cent, from a top of 1.83 per cent last week, and heading toward the floor of the recent trading range at 1.65 per cent.

That had seen the spread over Treasuries narrow to 4.5 basis points, having been as wide as 40 basis points at one stage in February.

Analysts at Westpac noted that net buying of Australian government bonds was the highest in two years in March, led by foreign sovereign accounts.

The market has also been helped by limited supply, with the RBA often buying more debt than the government is selling every month.

A rapidly improving economy means the government's budget deficit is turning out to be a lot smaller than first projected, suggesting the net supply of debt will be even more constrained in the second half of the year.

REUTERS