Australia, NZ dollars edge up on soft US data, dairy and Fed in focus

[SYDNEY] The Australian and New Zealand dollars rose on Tuesday as attractive government bond yields lured investors after disappointing US data pushed back expectations of a rate increase by the Federal Reserve.

The Australian dollar edged up to US$0.7551, from US$0.7533 on Thursday before the long Easter break. It remained within reach of an 8-month summit of US$0.7681 touched earlier this month.

It has leapt 5.7 per cent so far in March which, if sustained, would be the largest monthly rise since 2011. Much of the gains are due to a weaker US currency on fading expectations the Fed will resume raising rates soon.

Dealers cited selling interest around US$0.7560 and US$0.7580. Support was found at Thursday's low of US$0.7477.

The next big event for foreign exchange markets is a speech by Fed Chair Janet Yellen on the economic outlook and monetary policy at 1620 GMT on Tuesday.

The focus then moves to China's manufacturing PMI survey on Friday. The Australian dollar is sensitive to news out of China, its major export market.

Elias Haddad, a senior currency Strategist at Commonwealth Bank of Australia, forecasts the world's second-biggest economy to show modest improvement in manufacturing after the Chinese Lunar New Year.

Also helping are attractive government bond yields with Australia's 2-year bonds paying 2 per cent. New Zealand's counterparts offer 2.1 per cent compared with the negative yields of Germany, France, Sweden and more recently Japan.

Australian government bond futures were a touch firmer, with the three-year bond contract up 1 tick at 98.040. The 10-year contract rose half a tick to 97.4250, while the 20-year contract edged up 1 tick to 96.8550.

The New Zealand dollar rallied overnight, rising to US$0.6736 from as low as US$0.6670 the previous session after six days of falls.

"With no domestic events, the USD remains the driver with Fed Chair Yellen speaking tonight," ANZ analysts said in a research note.

Investors would also be watching the Global Dairy Price auction held in the early hours of Wednesday morning. No doubt the kiwi will come under pressure on any signs of further weakness in dairy prices after they dropped 2.9 per cent at the previous sale.

Analysts expected the kiwi to trade between US$0.6660 and US$0.6780.

New Zealand government bonds gained, sending yields one basis points lower along most of the curve.

REUTERS