Australia, NZ dollars lose ground with commodities, ahead of Fed

[SYDNEY] The Australian and New Zealand dollars took a breather on Tuesday as softer commodity prices and a looming policy meeting by the Federal Reserve encouraged caution and underpinned the US dollar.

The Australian dollar edged lower to US$0.7490, from US$0.7505 early and away from an eight-month of US$0.7595 touched on Monday.

Dealers said a failed attempt to break stiff resistance around 76 cents gave investors an excuse to book profits. The Aussie has gained more than 3 cents so far this month.

Support was found at US$0.7453.

In minutes of its March policy meeting, Australia's central bank reiterated there would be scope to ease if needed, though it saw "reasonable prospects" for continued economic growth.

The Reserve Bank of Australia held rates at a record low of 2 per cent earlier this month. "The easing bias was pretty clear," said Sean Callow, a senior currency strategist at Westpac, noting that the combination of higher Australian dollar and a volatile iron ore price will make the RBA uneasy. "They won't be thrilled, but they will be waiting for things to settle down first."

Debt futures 0#YIB: imply a one-in-three chance of a rate cut in May, and the majority of economists forecast an easing in the second half of the year.

The New Zealand dollar was trading at US$0.6658 after falling sharply overnight in line with other commodity-linked currencies.

BNZ FX Strategist Kymberly Martin said support is now eyed at the 200-day morning average around US$0.6625, and at US$0.6500. She said it may gain some respite if a coming GlobalDairyTrade auction results in a rise in prices. The sale is slated to take place overnight and dairy futures point to a slight bounce.

New Zealand government bonds were mixed across the curve, with yields a shade firmer at the long end.

Australian government bond futures were off multi-week lows, with the three-year bond contract up 4 ticks at 97.935. The 10-year contract rose 3.25 ticks to 97.3375, while the 20-year contract held steady at 96.7875.

Expectations of steady cash rates in the near term saw the premium between 10-year and 3-year government yields shrink to 59 basis points, a whisker away from the smallest in nearly a year.

REUTERS