Wednesday, 07 November 2012 11:30
WELLINGTON/SYDNEY: The Australian dollar scaled fresh five-week highs against the US dollar on Wednesday after TV networks projected a re-election win for US President Barack Obama.
Such an outcome was seen as removing a potential obstacle to continued quantitative easing by the Federal Reserve, something the Republicans have been opposed to. The promise of further stimulus led to a drop in Treasury yields and the US dollar, and a rise in commodities including gold.
That in turn lifted the Aussie to $1.0461, its highest since Sept. 28, from $1.0435 in early trade, bringing its gains to 1 percent so far this week.
The local currency had already been underpinned after the Reserve Bank of Australia (RBA) surprised some by holding interest rates steady on Tuesday.
Attention is now quickly shifting to Europe where Greece is expected to vote on Wednesday an austerity package needed to secure an injection of aid and avert bankruptcy.
"Assuming the budget passes, and with an Obama victory, it will give another boost to the Aussie," said David Scutt, a trader at Arab Bank Australia, seeing a climb to $1.0500.
It last traded at $1.0451, having broken a stubborn Fibonacci resistance at $1.0440/45, the 61.8 percent of the $1.0625/$1.0149 move. Traders cited option-related selling near $1.0450, and a sustained break above targets the Sept. 21 high of $1.0519.
The New Zealand dollar paused at $0.8272, hovering near a five-week high of $0.8293 hit on Tuesday. Initial support was seen at $0.8250, while offers were seen above $0.8300.
Investors shrugged off a warning from new Reserve Bank of New Zealand Governor Graeme Wheeler that a high currency was hurting the economy, though he also conceded there was a chance the kiwi could go even higher.
"This would particularly be the case if New Zealand's relative growth outlook continued to be perceived as favourable, despite the lower terms of trade," Wheeler said.
The Antipodeans held near multi-month peaks against the euro and yen.
The euro managed to edge up to A$1.2300, but was still very close to a two-month trough of A$1.2236 touched on Tuesday. It has fallen more than 4 percent in one month.
Against the kiwi, the euro last fetched NZ$1.5535, having slipped as low as NZ$1.5424, its lowest since late August.
The Aussie and kiwi trimmed hefty gains against the yen but kept in sight of six-month peaks hit overnight as carry trades come back into favour. Investors borrow in yen to buy high yielding currencies.
The Aussie eased to 83.68 yen, from a high above 84 yen on Tuesday, while the kiwi fell to 66.23 yen, having climbed to 66.76 last week, its highest since April.
Despite a rally in Treasuries, the steady rate decision from the RBA hurt Aussie government bond futures, particularly at the short-end as the yield curve bear flattened.
The three-year contract skidded to 97.280, its weakest in nearly two-months. It was last 0.02 points down at 97.330, while the 10-year contract also shed 0.02 points to 96.880.
Interbank futures now imply around a 50-50 chance of a cut, while swaps show a 61 percent chance.
Still, markets imply further easing in the longer-term and are fully priced for a 25 basis-point cut in February.
New Zealand government bond prices were mostly lower, with yields as much as 2.5 basis points higher.
Copyright Reuters, 2012