Australian, New Zealand dollars steady as high commodity prices, rising yields support

[SYDNEY] The Australian and New Zealand dollars were largely steady on Tuesday as sellers were held at bay by higher commodity prices as well as on spiking bond yields driven by bets that major central banks will tighten policy to curb rising inflation.

The Aussie was a 0.01 per cent lower at US$0.7345, near the three-week high it reached on Friday. It faces resistance in the US$0.7373 area and is supported around US$0.7269.

The kiwi dollar was little changed at US$0.6936. It has support around US$0.6876 and faces resistance at US$0.6980.

Both currencies have been aided by a rally in commodity prices as oil has jumped to multi-year highs, while coal and gas prices soar amid energy shortages in China and Europe.

The global pricing pressure has fed investor concerns about the risk of inflation, which in turn has led to growing expectations for tighter monetary policy and pushed bond yields sharply higher.

Yields on 10-year Australian government bonds were trading up at 1.73 per cent, the highest since May 20, having jumped 44 basis points in the past six weeks. At 2.13 per cent, New Zealand yields were trading at their highest since early 2019.

"The summer reopening dynamic is likely to fuel perceptions of a strengthening economy, and so directional bias to higher yields," said JPMorgan Australia and New Zealand economist Ben Jarman, in a note to clients.

Australia's most populous state this week eased a nearly four-month Covid-19 lockdown, brightening the outlook as authorities shift their focus to rejuvenating the economy.

The optimism is putting pressure on the Reserve Bank of Australia (RBA) to tighten its extra-dovish monetary conditions and hike interest rates from its record low of 0.1 per cent, which has dragged on the Australian dollar.

"Australian interest rate futures continue to bring forward bets on rate hikes despite the RBA's guidance that it will not raise the cash rate before 2024," Commonwealth Bank of Australia economist Kristina Clifton said in a note.

In New Zealand, the government on Tuesday reported a marked improvement in its finances thanks to a surprisingly brisk recovery for its economy, though a fresh coronavirus outbreak has since clouded the outlook somewhat.

New Zealand's central bank last week raised rates for the first time in seven years, underpinning the kiwi dollar.

REUTERS