Australia, NZ dollars subdued, RBA awaited

[SYDNEY] The Australian and New Zealand dollars were subdued on Tuesday after recent hefty gains left the currencies overstretched, with investors awaiting comments from the head of the Reserve Bank of Australia (RBA).

The Australian dollar eased to US$0.7572, its third session of losses, from an eight-month peak of US$0.7681 touched last week. It proved unable to hold above 76 US cents, a level touched twice since Friday.

Overnight, hawkish comments from Federal Reserve officials provided a boost to the US dollar after it had lost ground in the past few days when Fed chair Janet Yellen last week adopted a more cautious stance on future rate increases.

The Aussie has jumped 6 per cent this month largely due to changes in monetary policy expectations in the United States and Australia.

If sustained, it would be the largest monthly rise since 2011. Support was found at US$0.7552.

A rising Aussie, however, is not welcome news for the RBA as the end of a mining boom means economic growth is coming from other areas more reliant on a lower currency such as tourism and education.

Dealers said RBA governor Glenn Stevens may take the opportunity to talk down the runaway Aussie when he addresses a business community in Sydney later on Tuesday.

"The RBA may want an AUD at the lower end of 70 cents, and some even want it at 65 cents," said Evan Lucas, a market strategist at IG.

"However, in the coming three to four months, it is hard to see the AUD finding anything other than support when it weakens slightly," he said, noting Australian bond yields were more than 250 basis points above rates in Europe, Japan and North America.

The New Zealand dollar was steady at US$0.6756, off a five-month high of US$0.6874 touched last week.

"It was deadly quiet last night, with little data and little news to drive markets in this holiday-shortened week," said currency strategist Jason Wong in a research note.

New Zealand government bonds eased, sending yields 2.5 basis points higher at the short end of the curve and 4.5 basis points higher at the long end.

Australian government bond futures fell, with the three-year bond contract off 2 ticks at 98.040. The 10-year contract eased 3 ticks to 97.401, while the 20-year contract shed 4.5 ticks to 96.8300.

REUTERS