Australian dollar falls as COVID-19 lockdown in Sydney extended

SYDNEY: The Australian dollar eased against the greenback on Monday as a spike in COVID-19 cases in Sydney raised the prospect of an extended lockdown, while the New Zealand dollar weakened ahead of data later in the week expected to show milder inflation.

The Aussie was trading 0.31% lower at $0.7468, losing some of the ground recovered by the close on Friday, after it had dropped to a seven-month low of $0.7410 earlier that day.

Growing global concerns about the coronavirus Delta variant and ongoing trade tensions with China will likely keep traders wary, analysts said.

The prospect of an extended lockdown in Australia's largest city of Sydney loomed on Monday as health officials reported another record daily rise in COVID-19 cases for the year, fuelled by the highly infectious Delta variant.

Australian dollar below 75 cents on dovish central .bank, NZ$ falters

"The market seems to be reassessing the extent to which the global economic recovery can continue, particularly with the spread of the Delta variant," ANZ strategists said.

The kiwi dollar was 0.26% lower at $0.6978, losing some of the ground it had recovered by the close on Friday after striking a trough of $0.6923, its lowest since June 18, earlier that day.

"Nevertheless, the broad story of NZ outperformance and the possibility of earlier OCR hikes should provide support for New Zealand dollar," ANZ added.

New Zealand's central bank on Wednesday is expected to leave its official cash rate at 0.25%.

However traders are already pricing a hike in November and 75 basis points of cumulative hikes by late 2022, the most aggressive pricing across G10 central banks, according to JPMorgan economists.

It is a busy week for New Zealand economic indicators, with second quarter consumer price data due on Friday expected to show a slight deceleration from the 0.8% increase in the previous quarter.

Bonds were mainly higher on Monday, with New Zealand yields falling two basis points at the short end of the curve, while remaining either unchanged or one basis point lower at the longer-end.

Australian 10-year yields moved two and a half basis points lower to 1.325%. The more liquid 10-year future instrument moved 4 ticks higher to 98.675, lowering its yield to 1.33%.