Australian, New Zealand dollars lean on support as US dollar barges ahead

[SYDNEY] The Australian and New Zealand dollars were perilously close to major chart bulwarks on Thursday as the US dollar continued its broad advance, though both currencies fared better against the low-yielding euro and yen.

The Aussie eased to US$0.7584, after failing to clear resistance at US$0.7664. The focus was on the recent low of US$0.7564 where a break would risk a retreat to US$0.7500, if not the 200-day moving average at US$0.7385.

The kiwi faded to US$0.6975 and away from resistance at US$0.7033. Again, that was uncomfortably near a recent four-month trough of US$0.6944 and a breach would open the way to the 200-day moving average at US$0.6880.

Australian data was a mixed bag with retail sales falling a smaller-than-expected 0.8 per cent in February, while the trade surplus missed forecasts at A$7.5 billion (S$7.64 billion) because of a surprisingly sharp rise in imports.

Much more emphatic were figures showing home prices rose at the fastest pace in three decades in March, delivering a windfall to consumer wealth and confidence.

Yet the surge has done little to shake the Reserve Bank of Australia's (RBA) commitment to super-loose policy, which is focused on driving unemployment down to levels that will lift wage growth and inflation.

"With this in mind, we expect the RBA to remain dovish, despite rapidly rising housing prices and growth in new housing finance," said Paul Bloxham, Australia chief economist at HSBC.

"We expect the RBA to keep its cash rate and 3-year yield targets at 0.10 per cent in 2021 and 2022, and to extend its QE programme beyond October."

While three-year yields are pinned near 0.1 per cent, longer-term yields have been carried higher by the global reflation trade leaving the yield curve at its steepest in decades.

Yields on 10-year bonds were up at 1.819 per cent on Thursday, a rise of 15 basis points for the week.

With yields in Japan and the EU held back by central bank action, the Aussie has gained on the yen and euro. The euro was at A$1.5461, against US$1.6000 at the start of the year.

"AUD's 10-year yield pickup on the euro has trended sharply higher since November 2020," said Westpac FX strategist Sean Callow.

"Once the global recovery becomes more synchronised in the second half of the year, AUD's leverage to industrial growth should underpin gains on crosses. Our base case is A$1.51 mid-year, A$1.49 year-end."

REUTERS