Australia, NZ dollars down sharply for week, bonds notch big rally

SYDNEY: The Australian and New Zealand dollars were ending the week deep underwater on Friday as the market gave up on the chance of early rate hikes and pulled bond yields sharply lower.

The Aussie was pinned at $0.7590, leaving it down 1.9% for the week and below chart support around $0.7615/20.

The next major support level was uncomfortably close at $0.7564, and a break would open the way to a retracement target at $0.7499 or even the 200-day moving average at $0.7370.

The kiwi dollar idled at $0.6965, having shed 2.8% for the week in its worst performance in almost six months.

The slump swept away support at $0.7100 and $0.7005, as well as the 100-day moving average at $0.7118.

The next target for bears was the 200-day moving average at $0.6869.

The kiwi has been floundering since New Zealand decided to cool a red-hot housing market by ending tax breaks for property investors, a shift that forced speculators to sharply scale back wagers on an early hike in rates.

A huge rally in bonds saw yields on two-year paper down 9 basis points for the week at 0.26%, and back in line with the 0.25% cash rate.

Ten-year yields were off 17 basis points for the week at 1.683%, having been as low as 1.545% at one stage.

Australian bonds followed with 10-year yields down 13 basis points on the week at 1.677%, a long way from the February top of 1.97%.

A break under 1.65% could allow a further rally toward 1.42% and fill a chart gap left during February's sudden selloff.

The pullback will be welcomed by the Reserve Bank of Australia (RBA) which has been emphasising that policy needs to stay super-loose to really revive wages and inflation.

Bill Evans, chief economist at Westpac, said the RBA was now likely to extend its bond buying programme by a further A$100 billion ($76 billion) from October, in part to temper any renewed strength in the Aussie.

"Were the RBA to taper it will expose the AUD and signal to the market that it has begun tightening," said Evans.

"Westpac forecasts that the AUD is likely to be on the rise in the second half of 2021," he added. "As economies reopen and global growth accelerates, "risk on" currencies are expected to be supported."