Australia, New Zealand dollars dragged lower by Delta spread

SYDNEY: The Australian dollar slipped on Monday, knocking its kiwi counterpart lower, as the country's largest cities remained under strict lockdowns amid rising cases of the highly contagious COVID-19 Delta variant.

The Aussie fell 0.12% to $0.7356, after dropping to a near eight-month low of $0.72895 last week when over half the country's population were under say-at-home orders to combat the spread of the virus.

"Heightened fear of the delta variant/ rising case counts and the increasingly severe lockdowns across Australia, plus risks the RBA ups quantitative easing all point to a possible Australian dollar extension down towards $0.7200-$0.7225 over the next few weeks," Westpac strategists said in a note.

Lower iron ore prices and the possible strengthening in the US dollar on the possibility of the Federal Reserve moving a step closer to tapering at its two-day policy meeting this week could also be a drag for the Aussie, analysts said.

The kiwi dollar also fell 0.18% to trade at $0.6965 , having buckled to an eight-month trough of $0.6882 last week.

Australia, NZ dollars near recent lows as risk appetite wanes, bonds gain

The currency faces strong resistance around the $0.70 area, but the mid-term outlook remains positive given the strength of its economy, which has prompted the Reserve Bank of New Zealand to signal interest rate hikes.

"While global equity market sentiment is elevated, COVID risks persist and New Zealand's vaccination rate remains low," Westpac analysts added.

Australia and New Zealand have had relatively few COVID-19 infections and deaths compared with other developed countries, but their respective vaccination rates of about 16% and 12% remain stubbornly low.

Australian bonds were little changed, with the yield on the 10-year government benchmark stable at 1.19%, down from 1.49% on July 1.

The three-year bond yield was also little changed at 0.274%.

Across the Tasman sea, New Zealand bonds were slightly stronger, pushing yields 2-to-3 basis points lower across the curve.