SYDNEY/WELLINGTON: The Australian and New Zealand dollars dipped modestly on Thursday, proving resilient to a sharp fall in equities after poor US economic data revived worries about global growth, sending investors to the safety of government debt.
The Australian dollar fell to $0.8804, from a peak of $0.8860 overnight after investors booked profits. It gained more than 1 percent on Wednesday in a choppy session that saw the US dollar touch multi-week lows against the yen and euro.
A string of downbeat economic data including weak retail sales and manufacturing activity numbers dealt Wall Street a fresh blow overnight, with stock markets in Japan and Australia skidding more than 1 percent.
Dealers said the Antipodean currencies managed to hold relatively well, partly because USD-long positions in the speculative community against both Aussie and kiwi were not as extreme as in other currencies.
"I see the broad correction in the US dollar lasting a while longer and it will support the Aussie in the next few weeks or so," said a trader at a European bank in Singapore, seeing the Aussie moving, sometimes erraticly, in a $0.8650-$0.8900 band.
The Aussie, which has tumbled seven cents since early September to touch four-year lows earlier this month, was also underpinned by a jumbo A$7 billion issue of government bonds. Half of the offer was placed with international investors.
The New Zealand dollar proved even more resilient that its Aussie cousin holding near a three-week high at $0.7983. Global dairy prices drove the kiwi nearly 2 percent higher overnight in its best one-day gain since February.
"I put it down to poor liquidity in the kiwi, and a better dairy auction result that many in the market were expecting," said Tim Kelleher, head of institutional FX sales at ASB Bank. Against the Aussie, it traded at NZ$1.1023 from a three-week high of NZ$1.0970 touched on Wednesday.
Kiwi investors were heartened after results from the fortnightly Global Dairy Trade auction showed the overall index rose 1.4 percent due to solid gains in prices for whole milk powder, a key export product to China.
The first gain in the index since mid-July prompted some optimism that global dairy prices may begin to stabilise after tumbling nearly 50 percent so far this year as China has slowed its buying while a Russian ban on dairy products has flooded global supply.
Still, the kiwi's rally stopped short of the key $0.8000 level, where hefty offers loomed, and traders said that further significant gains may be limited if investors revive expectations that US interest rates will rise around mid-2015.
Volatility in the kiwi, which tends to rise during times of uncertainty, has picked up in the past month.
Three-month volatility has climbed close to 11 percent, near its highest levels of the year and closing in on levels seen in mid-2013, when higher-risk assets sold off sharply.
A surge in US Treasury bonds sent New Zealand government bonds higher with the benchmark 10-year yield at a 16-month low around 3.95 percent.
Australian government bond futures rose, with the three-year bond contract up 1 tick at 97.490.
The 10-year contract also added 1 tick to 96.785, having touched a 17-month peak of 96.905.
The premium offered by Australian 10-year yields over 3-year yields was at 63 basis points (bps), having shrunk as far as 57 bps overnight, its smallest since May last year. It was at 135 basis points early in January.
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