A$ & NZ$ struggle vs USD; bonds fall as stocks jump

SYDNEY: The Australian and New Zealand dollars struggled to make any headway against a broadly firmer greenback on Wednesday, but held gains on the safe-haven yen after upbeat US data sparked a surge in Asian stocks.

This saw the Aussie dollar idle at $1.0538 in late trade, against $1.0540 in New York. Still, it held off a seven-week low of $1.0473 plumbed on Monday.

Traders cited bids around $1.0510, the first level of support, ahead of $1.0470, the 38.2 percent retracement of its mid-December-February rally. Resistance is seen at $1.0576/85, Monday's high and the top of the daily Ichimoku cloud.

The New Zealand dollar shed 0.4 percent on the day to $0.8198, trimming gains after rising as high as $0.8247 on Tuesday. Support is seen at its 55-day moving average round $0.8170, which has bolstered the currency in the past week.

The robust US data, the latest being a strong 1.1 percent jump in retail sales, have caused markets to scale back expectations of more stimulus from the Federal Reserve, driving both US Treasury yields and the US dollar higher.

"This took the wind out of the sails of the kiwi," said Bank of New Zealand rate strategist Kymberly Martin, as the spread between the two currencies slipped to around 193 bps.

Not helping the Aussie was another batch of soft local data, including a sharp drop in consumer sentiment and falls in dwelling unit starts. Both sets of data could add marginally to the case for more easing by the Reserve Bank of Australia (RBA).

"Overall, the RBA projects a relaxed and comfortable demeanour about current and ongoing trend growth and trend inflation, hence there is unlikely to be an immediate RBA rate cut based on data points such as these," said Annette Beacher, head of Asia-Pacific research at TD Securities.

"Nevertheless, TD still leans towards cuts of 50 basis points to 3.75 percent closer to mid-year, with the criteria being a rising unemployment rate and underlying inflation sinking towards 2 percent."

But both the Aussie and kiwi held firm on the yen, which traders said is currently the favoured funding currency for carry trades. The Aussie rose to a near two-week high of 87.60 yen, extending Tuesday's 1.1 percent gain.

The kiwi was steady at 68.17 yen, having earlier hit a high of 68.28. It ran into heavy resistance around 68.26/29, a level that has repeatedly capped it. A sustained break there would target the Aug 1 peak of 68.88 yen, the highest since May 2010.

Both Antipodeans also stayed firm against the euro, which stood at A$1.2397 and NZ$1.5932, having retreated from Monday's peak of A$1.2546 and NZ$1.6105.

Improved risk appetite helped drive Asian stocks higher and weighed on appetite for safe-haven government bonds.

New Zealand government bond prices fell, with yields rising as much as 5 basis points along the curve. Benchmark two-year bond yields rose to 3.105 percent from 3.067 percent.

Australian debt futures were also in the red, with the three-year contract down 0.085 points at 96.350 and the 10-year 0.115 points lower at 95.910.

Copyright Reuters, 2012