SYDNEY/WELLINGTON: The Australian and New Zealand dollars pushed closer to multi-year peaks on a floundering yen on Thursday, but were outpaced by the euro and US dollar as Japan's new government vowed to weaken its currency.
The market has been selling yen in expectation that Prime Minister Shinzo Abe will force the Bank of Japan into taking far more aggressive policy stimulus that in the past. But investors have seen greater scope for gains by the euro and US currency, lifting them relative to everything else.
"The euro is strong simply because of end of year-end flows. Japanese are buying the euro en masse against the yen," said David Scutt, a trader at Arab Bank Australia. "Everyone seems to be short yen at the moment which makes me a bit nervous about a pullback."
As a result the Aussie dollar climbed to 88.88 yen, closing in on a 1-1/2-year high of 89.01 yen hit last week. But the euro surged even further, taking it to A$1.2760 for a gain of 4 percent in the past three weeks.
Likewise, the New Zealand dollar reached 70.18 yen, within sight of a four-year high of 71.36 yen hit a week ago, but in turn lost round to the euro.
The Antipodean currencies have also been hobbled by uncertainty over US fiscal talks which could trigger automatic tax rises and spending cuts that push the United States into a recession next year.
"I'm still not convinced that they'll get something together by the end of the year," said Tim Kelleher, head of institutional FX sales at ASB, on the fiscal talks.
A failure to reach an agreement could trigger a sell-off in currencies leveraged to global growth and, paradoxically, bolster the safe-haven US dollar.
"Either way, we're seeing some risk aversion into the end of the year, so the kiwi will struggle to rise towards $0.8250."
The kiwi touched a one-month low of $0.8156 hit on Wednesday, before steadying at $0.8198.
Its Australian neighbour had backed off to $1.0360, leaving behind a three-month peak of $1.0585 hit earlier this month.
The kiwi is still on track for gains of 17 percent versus the yen this year, while the Aussie is up 13 percent.
The New Zealand currency has outperformed versus most currencies and is poised to end the year 6 percent higher versus a currency basket.
New Zealand government bonds were little changed in very thin trading. Australian government bond futures took a late dip. The three-year bond contract eased 0.01 points to 97.260 and the 10-year contract lost 0.15 points to 96.665. ‑Reuters
Center>Copyright Reuters, 2012