Australian, New Zealand dollars extend rally, strong yuan lends a hand

[SYDNEY] The Australian and New Zealand dollars continued to benefit from improving global risk sentiment on Thursday as investors counted on Omicron being "mild", while a surge in the Chinese yuan provided an extra tailwind.

The Aussie was holding firm at US$0.7166, having rallied another 0.7 per cent overnight to as far as US$0.7183. That puts it some way from the recent 13-month trough of US$0.6994, though more resistance now lies around US$0.7210.

The kiwi dollar stood at US$0.6803, after rising 0.3 per cent overnight before meeting resistance at US$0.6818. It needs to clear US$0.6867 to be on a firmer footing.

"The A$ has exceeded our US$0.7150 target, and a close above US$0.7180/90 would suggest that it can keep on pushing higher,"said Richard Franulovich, head of FX strategy at Westpac.

One supporting factor, he noted, was the recent run of upbeat trade data from China, along with stimulus steps from Beijing to underpin the economy and the property sector.

The market had responded by pushing the yuan to a three-year high on the US dollar, lifting the Aussie as investors use it as a liquid proxy for the Chinese currency.

While the spread of Omicron remained a concern, having forced the UK to impose tougher restrictions, markets were choosing to focus on reports the variant was not putting many people into hospital and that vaccines were still effective.

That outlook has seen safe haven bonds surrender some gains this week, with 10-year yields reaching 1.70 per cent compared to a low of 1.518 per cent on Monday.

Local bonds have still managed to outperform Treasuries, with the spread over US debt at 17 basis points compared to 33 basis points at the start of December.

REUTERS