NZ, Aussie dollars edge down on US debt jitters

WELLINGTON/SYDNEY: The New Zealand dollar loitered near 30-year highs on Monday, while the Aussie gave ground only grudgingly as foreign exchange investors held their nerve in the face of uncertainty over the US debt ceiling.

The Aussie dollar eased to $1.0819, from $1.0851 in New York on Friday, as the danger of a US default prompted some profit taking. Congress has, so far, failed to achieve a budget as Aug 2 deadline looms.

"The markets still got the impression that they will come up with a solution before August 2," said David Scutt, a trader at Arab Bank Australia.

"Until that moment comes, there will be an element of doubt in the mind of traders and that will be enough to put a cap on risk currencies."

Having gained 2 percent last week, the Aussie remained within sight of a two-month peak of $1.0875 struck during the offshore session.

The New Zealand dollar held firm at $0.8648, having struck a fresh 30-year peak of $0.8676. The kiwi is showing no sign of retreat, with resistance around the latest high and minor support around $0.8580.

Local investors are keenly awaiting the New Zealand central bank's next rate review due later this week in the wake of bullish growth and inflation data over the past two weeks.

"All eyes will be on the Reserve Bank of New Zealand on Thursday, for their take on the timing of the next move in interest rates, and no doubt some currency chidings as well," said Derek Rankin of Rankin Treasury in a note to clients.

Further gains will depend on US debt talks progress, Rankin said, adding the kiwi's stellar rise makes it vulnerable to sharp downside corrections.

The kiwi has gained around 4.5 pct this month, driven by the belief rates will rise sooner than expected.

A clear majority of analysts in a Reuters poll expect the RBNZ to start increasing rates in December, although a growing view is that September and October cannot be ruled out as the bank looks to stifle growing inflation pressures.

The big items to watch this week will be on a speech by the Australian central bank governor on Tuesday and inflation data on Wednesday .

A high reading for core inflation could revive pressure for another tightening in policy even as a patchy domestic economy and global uncertainty argue against a move.

For now, technical momentum for the Aussie currency remains positive, with strong resistance seen around $1.0889 and support at $1.0807. A move below $1.0800 targets the 38.2 Fibonacci of the recent $1.0560/$1.0875 range at $1.0755, according to a trader.

Against its kiwi neighbour, the Aussie fell to around NZ$1.2500, not far from a near 12-month trough of NZ$1.2471 struck last week on the divergent market rate outlook.

Indeed, market pricing implies a total easing of 42 bps in the next 12 months in Australia, while some 100 bps of rises are seen in New Zealand. That was up from 69 bps last week.

New Zealand government debt prices were mostly high, while Australian debt futures rose. The three-year contract gained 0.08 points to 95.620, while the ten-year contract 0.05 points off at 95.075.

Copyright Reuters, 2011