Australian, New Zealand dollars test resistance, offshore buyers big on bonds

[SYDNEY] The Australian and New Zealand dollars edged higher on Wednesday as progress on a Covid-19 vaccine buoyed US equities, while details of a bumper Aussie bond sale showed strong demand from foreign buyers.

The Aussie added 0.3 per cent to US$0.6998 but struggled to break resistance around US$0.7020, ahead of the June peak at US$0.7069. Support comes in around US$0.6965 and US$0.6925.

The kiwi dollar firmed 0.2 per cent to US$0.6552, though it also faces tough resistance in the US$0.6590/0.6600 area. Support lies at US$0.6545 and US$0.6510.

The Aussie has been wedded to US stocks in recent weeks as a barometer of risk appetite and moved higher with S&P 500 futures on news Moderna Inc's experimental vaccine for Covid-19 showed early progress.

Domestic events were not so promising, as a survey showed consumer sentiment had been shaken by the lockdown of Melbourne amid a fresh coronavirus outbreak.

That added to the case for the government to keep pumping stimulus into the economy and not scale back employment support in September as initially intended. An update on its budget plans is due on July 23.

"The recent outbreak will remind households and businesses alike that the virus will not disappear anytime soon," said CBA economist Belinda Allen.

"The likelihood that both JobSeeker and JobKeeper will need to be extended in some form, as well as other new policy measures are rising."

The Aussie enjoyed a tailwind from Tuesday's huge A$17 billion (S$16.5 billion) sale of a new Australian 2025 bond line which drew A$50.6 billion in bids.

Details of the offer showed 45 per cent on the debt went to offshore investors, mainly in Asia ex-Japan and the UK. Among the buyers, fund managers took 27 per cent, hedge funds 23 per cent and central banks 8 per cent.

The issue boded well for the sale of a new 2051 bond line due in the week of July 27.

"We expect anywhere between A$4-8 billion of the ACGB 06/51s to be issued with the bulk of the interest to come from North American and UK fund managers," said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.

"The long end is extremely attractive on an FX hedged basis - the pick up over foreign bonds is at or near record wides thanks to falling AUD hedge costs."

Australian 10-year bond futures firmed 2 ticks to 99.0900, but have had trouble clearing resistance around 99.1500.

REUTERS