Aussie & NZ dollars cling to gains, watching Asian currencies

WELLINGTON/SYDNEY: The Australian and New Zealand dollars held steady, on Friday after tracking the euro higher on the prospect of US dollar funding help for European banks.

Aussie clings to gains at $1.0313, from $1.0317 in New York, having risen to a high of $1.0346 overnight.

Aussie still down 3.5 percent this month and likely to be capped at $1.0423 with support at $1.0240.

Markets watching any further weakness in Asian currencies as foreign investors kept taking profits on their regional bets. That has been weighing this week on the Aussie, a proxy for Asian currencies.

Traders cited massive liquidation of longs in Asian currencies against the dollar on concerns another global credit crunch may be looming.

The kiwi steady at $0.8227, from $0.8223 after bouncing to overnight high of $0.8278. It is well off one-month lows touched twice earlier in the week.

The RBNZ held rate steady at 2.5 pct on Thursday, but kept its tightening bias. It warned of uncertain global outlook and that prompted bets that the central bank will delay hiking rates until the first quarter next year.

Still, sentiment helped by improved risk appetite, with kiwi resistance seen around $0.8280 while strong support lining up around $0.8200, which has held up well recently.

Market pricing steady, implying 10 pct chance of a 25 bps hike next month, and 46 bps of tightening over the next 12 months.

No major data due Friday, with Q2 current account balance and GDP data expected next week.

Foreign direct investment (FDI) in China grew 17.7 pct so far this year with fears of a recession in the US seen to weigh on overall investment inflows into China in future months.

The euro steady against the Antipodeans, holding around A$1.3431 on the Aussie , having hit a six-week low of A$1.3013 earlier this week. Against the kiwi, the euro at NZ$1.6823 , off a 6-week trough of NZ$0.6497 on Monday.

NZ government bonds lower in line Treasuries, with local yield up to 6 bps higher along the curve, reversing falls from Thursday after the RBNZ's rate review.

Australian bond futures fell with Treasuries, with the three-year contract down 0.12 points to 96.370 and the 10-year 0.065 points lower at 95.765.

Copyright Reuters, 2011