Australian dollar poised for biggest monthly gain in 4 yrs, NZD follows

Published Thu, Mar 31, 2016 · 02:23 AM

[SYDNEY] The Australian and New Zealand dollars stood near nine-month peaks on Thursday, though their explosive monthly gains were unlikely to be greeted with open arms by their respective central banks.

The Australian dollar sat at US$0.7658, having popped above 77 cents on Wednesday for the first time since June. It has leapt 7.1 per cent so far this month and if sustained, it would be the largest such increase since late 2011.

Resistance was found at US$0.7750.

Yet, strength in the Aussie, up 8 cents since mid-January, could test the patience of the Reserve Bank of Australia (RBA). The central bank holds its policy review on April 5 and while it is widely expected to keep rates at a record low of 2 per cent, some dealers see increasing risks of an easing.

"The rising AUD could tip a reluctant RBA into cutting rates," said Citi, adding the central bank was more likely to react should inflation and economic activity both weaken.

Undermining the RBA's efforts to support a shift in the economy away from mining to sectors such as tourism, retail and education, are a dovish US Federal Reserve and ultra-loose policies in Japan and Europe. All of which have only boosted the appeal of higher-yielding currencies.

Australia's two-year bonds pay 1.9 per cent, while New Zealand's counterparts offer 2.0 per cent. That compares with the negative yields of Germany, France, Sweden and more recently Japan.

The New Zealand dollar rose as high as US$0.6965 overnight, a level unseen since June, before retracing to around US$0.6900 in morning trade. "There has been no holding back the NZD/USD. Late last evening it gapped through technical resistance at US$0.6900, subsequently trading between US$0.6900 and US$0.6950," said BNZ Senior Market Strategist Kymberly Martin in a research note.

It was on track for an increase of 4.7 per cent in March, its largest monthly gain since November.

That again would be unwelcome to the Reserve Bank of New Zealand which cut rates early in March in part to head off any further appreciation in the currency.

New Zealand government bonds gained, sending yields half a basis point lower at the short end of the curve.

Australian government bond futures rose, with the three-year bond contract up 2 ticks at 98.120. The 10-year contract added 1 tick to 97.5150, while the 20-year contract edged up 1.5 tick to 96.9450.


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