Australia, NZ dollars run into profit-taking, caution ahead of RBA

[SYDNEY] The Australian and New Zealand dollars ran into profit-taking on Monday as sharp weekly gains left the currencies ripe for a small correction.

Investors were also cautious ahead of Tuesday's Reserve Bank of Australia meeting.

The Australian dollar fell 0.6 per cent to US$0.7326 on the day, having met stiff resistance at a one-month peak of US$0.7393. Support was found around US$0.7220.

It was still holding hefty gains, having shot up 1.9 per cent on Friday, its largest one-day gain in 12 months. The rise came after a disappointing US nonfarm payrolls report prompted investors to scale back the chance of a hike in US interest rates this month.

An ensuing rally in US Treasury jolted Australian government bond futures. The 10-year contract exploded to an all-time high of 97.8550. It last gained 5.5 ticks to 97.8250.

The three-year bond contract rose five ticks to 98.460, while the 20-year contract added six ticks to 97.2400.

Tuesday's RBA policy meeting weighed on the Aussie, with a Reuters poll finding 49 of 52 economists surveyed seeing the RBA holding at a record low of 1.75 per cent.

Joseph Capurso, a senior strategist at Commonwealth Bank of Australia, said while he expected no forward rate guidance from the RBA, there was a risk the statement could be dovish given recent low wage growth.

"If that happens, we could see a bit of Aussie selling but not below 72 cents," he said.

The RBA cut rates last month due to alarmingly low inflation. A private-sector gauge of Australian consumer prices fell in May, indicating a lack of inflationary pressure that could keep the door open for another cut in interest rates.

The market will also be scrutinising remarks from Fed Chair Janet Yellen, who is due to speak on the economic outlook and monetary policy at the World Affairs Council of Philadelphia on Monday at 1630 GMT.

Across the Tasman Sea the New Zealand dollar slipped to US$0.6914, from US$0.6956 late on Friday. It briefly touched a one-month peak of US$0.6965 early in the session before giving ground to broad US dollar strength.

The kiwi was a clear outperformer last week when it jumped 3.9 per cent, the largest such gain in five years.

New Zealand's financial markets were closed on Monday for a public holiday.

REUTERS