Australia, NZ dollars rebound after falls; China helps

SYDNEY: The Australian and New Zealand dollars rebounded on Monday after recent sharp falls, with China’s better-than-feared factory activity data and new support to drive economic growth buoying sentiment.

The Aussie added 0.4% to $0.6676, having suffered a 1.6% drop in the past two sessions to a three-week trough of $0.6623.

It is enjoying support at around 60 cents and resistance is at about 67 cents. The Australian dollar extended a Friday rally on the yen , up 0.8% to 94.58 yen.

The shock decision by the Bank of Japan (BOJ) on Friday to lift the lid on bond yields first sent the yen surging, but it soon reversed course as investors still seemed happy to run carry trades, or yen-funded positions in higher-yielding currencies.

The kiwi dollar was also 0.4% higher to $0.6178, pulling away from a one-month low of $0.6121 hit just last Friday. It rose 0.6% on the yen to 87.53 yen.

Data showed on Monday that manufacturing activity in China, the two currencies’ biggest export market, continued to shrink in July, albeit at a slower pace, while the release of new policy measures in China to boost consumption and pledges by major cities to bolster the property sector aided risk sentiment.

Australia, NZ dollars hold onto gains, taking weak China GDP in stride

The two currencies also received some support from US data on Friday that showed an easing in wage costs and core inflation, fuelling hopes that the Federal Reserve has finished tightening.

“USD can be volatile this week. The risk is a further increase in the USD because the weaker global outlook favours the safe-haven USD,” said Kristina Clifton, an economist at the Commonwealth Bank of Australia.

“AUD/USD can temporarily lift by around ½ cent if the RBA hikes by 25bp on Tuesday as we expect.”

Indeed, the rate decision by the Reserve Bank of Australia is the key risk event this week, with markets suspecting policymakers will hold rates steady but a slim majority of economists favouring a hike, arguing that inflation is likely to remain sticky for quite some time.

Local bonds moved higher in tandem with their global counterparts, with the three-year Australian government bond yields easing 6 basis points to 3.866%, and the ten-year also falling 5 bps to 4.008%.