A$, NZ$ stung by European setbacks

WELLINGTON/SYDNEY: The Australian and New Zealand dollars slumped on Monday, dogged by a number of political euro zone setbacks which dented risk appetite. Investors were now looking to this week's Federal Reserve meeting for clues on whether it will offer fresh stimulus for the sputtering US economy.

The Aussie slips more than a cent to $1.0245, from $1.0360 late in NY on Friday. Aussie broke through $1.0263, the 61.8 pct Fibonacci of the $1.0178/$1.0399 move. It is now heading towards major barrier at $1.0175/85 where a double bottom has formed. Last at $1.0246.

Talk of Asian sovereign accounts selling weighed on the local currency, according to traders.The NZ dollar falls around 0.5 pct to $0.8246, from $0.8287 in NY.

Technically, the currency may test $0.8120, having retraced half of its decline since early this month, with resistance initially at $0.8320 and above that $0.8370.

Risk assets, including stocks and commodities, under pressure in early Asia following Europe's disappointing attempts over the weekend to solve the euro zone debt crisis.

Markets lunge to safety, pushing the dollar index 0.7 pct higher to a four-day peak of 77.184.

Risk aversion hits the Aussie hard across most currencies, including the wobbly euro which dipped 1 pct against the greenback during the Asian session.

Single currency manages to nudge up to A$1.3318 , having struck a 6-month trough of A$1.0313 last week. Euro steady versus the kiwi at NZ$1.6568 .

Aussie down on yen, pound, Swissy and kiwi.

Australia's international merchandise imports on a balance of payments basis rose 4 pct to A$20.170 billion in August.

Asia-Pacific trade will be thinned by Japanese markets closed for a holiday.

Investor attention now on Federal Reserve's policy-setting committee, which will meet on Tuesday and Wednesday to discuss what, if anything, the central bank should do next. The popular idea is that the Fed would sell short maturities and buy longer-dated ones.

Australian diary this week dominated by Reserve Bank of Australia events -- minutes of September meeting, speeches by senior officials, and RBA financial stability report.

NZ indicators holding up well in the face of global turmoil, with consumer confidence in Q3 steady while services sector activity softer in August.

Latest data not altering market expectations of slow rate increases, with market pricing implying no chance of a rate hike next month. The latest Reuters poll has 10 of 18 analysts expecting the first rate move in 2012.

Main NZ events this week are Q2 current account and growth data. A Reuters poll forecasts the economy grew 0.5 percent in Q2, against a 0.8 percent rate in Q1. The current account deficit is seen shrinking slightly to 4 percent of GDP.

NZ government bonds lower, with local yields up to 7 bps higher.Australian bond futures firmer with the three-year contract up 0.10 points to 96.420 and the 10-year 0.085 points higher at 95.820.

Copyright Reuters, 2011