SYDNEY/WELLINGTON: The Australian and New Zealand dollars were held back on Thursday as markets stayed cautious amid political wrangling over the US budget that could stretch on for weeks.
The Aussie loitered around $0.9350, having steadily lost momentum since hitting a three-month peak of $0.9530 last week. Dealers cited solid support below $0.9330, with immediate resistance at $0.9386.
With the outlook for US monetary policy uncertain, investors were reluctantly conceding attention to Washington, where Congress was struggling to pass a spending bill.
The potential for a government shutdown, or even a default, put a lid on risk sentiment.
Yet, the Aussie is up more than 5 percent this month and if sustained, it would represent its largest increase in 18 months.
Its strong performance is partly due to a better-than-expected economic recovery in China and easy monetary policies in Europe, the US and Japan.
Matthew Johnson, a rate strategist at UBS, sees potential for the Aussie to extend gains to $0.9700, an outcome that would likely displease the Reserve Bank of Australia (RBA), which has been hoping for a weak currency to boost a slowing economy.
"The only thing the RBA can do about it is to show it can cut rates," he said.
Interbank futures imply around a 50-50 chance of a move by year-end, while swap markets are pricing in around 10 basis points of easing on a 12-month horizon.
The New Zealand dollar stalled around $0.8250, barely changed on the day, having come under pressure since reaching a four-month peak of $0.8445 Monday.
The kiwi lost a bit of altitude this week as investors booked profits following hefty gains. Traders said sellers above $0.8275 would cap any upside, while bids seen at $0.8200 and $0.8150 would provide support.
While the kiwi has not made additional headway due to a lack of economic drivers this week, many expect the currency will remain supported given the market's view that New Zealand interest rates will rise next year.
This month, the kiwi has rallied nearly 7 percent against the US dollar, which would be its best monthly performance since mid-2009. The higher-yielding currency has also been boosted by the view that the Fed will take its time withdrawing monetary stimulus.
New Zealand government bonds rose, pushing yields 3 basis points lower across the curve.
Australian government bond futures were a touch firmer with the three-year bond contract up 1 tick to 97.100 and the 10-year contract adding 3 ticks to 96.095.
Comments
Comments are closed for this article.