Australian, New Zealand dollars groggy after rough week for risk

[SYDNEY] The Australian and New Zealand dollars were looking punch drunk on Friday after a rough week of global risk aversion boosted the safe-haven US dollar, while slugging bond markets.

The Aussie had managed to clamber back to US$0.7218, from a five-week trough of US$0.7170, but was still down 0.5 per cent on the week so far. A break above US$0.7275 resistance was needed to stabilise the technical picture which was still focused on a bearish test of the August low of US$0.7107.

The kiwi steadied at US$0.6891, above a five-week trough of US$0.6860 but down a steep 1.6 per cent on the week. The loss of support at US$0.6982 had encouraged short sellers to aim for a re-test of its August trough of US$0.6807.

The Aussie found support from reports Beijing had ordered major Chinese energy firms to secure supplies at any costs to avoid power cuts, lifting coal and LNG prices.

Australia is a major energy exporter of energy and the surge in prices has helped offset weakness in iron ore to keep the country's terms of trade near record highs.

Rapid progress on vaccinations also allowed the Australian government to announce a partial reopening of the international borders starting from November, which will be a positive for the economy.

That will be a comfort for the Reserve Bank of Australia (RBA), which is counting on a strong recovery once lockdown restrictions start to ease from this month on.

The central bank holds its October policy meeting next week and is certain to keep rates at 0.1 per cent and likely reiterate that no hike is likely until 2024.

"We expect the RBA's cash rate to be on hold at 0.10 per cent in 2022 and 2023," said Paul Bloxham, chief Australian economist at HSBC. "We see QE continuing at A$4 billion a week with a further modest taper in February to A$3 billion a week, as the recovery continues through 2022."

More interesting will be the Reserve Bank of New Zealand (RBNZ) meeting on Oct 6 where markets are fully priced for a quarter-point rise to 0.5 per cent.

Investors also anticipate another hike in November and rates to be around 1.5 per cent by this time next year.

That outlook has seen 10-year bond yields climb steadily to 2.04 per cent, a hefty 54 basis points above Australian yields.

REUTERS