SYDNEY/WELLINGTON: The Australian dollar dived to a three-year low on Thursday as commodity-linked and emerging currencies were hammered by a broadly stronger greenback after the US Federal Reserve said it could slow the pace of bond purchases later this year.* Aussie slumps As much as 2.2 percent to $0.9260, cracking the previous low at $0.9325 and hitting its weakest since September 2010. Last at $0.9293. Next support around $0.9210, but risk is for a move toward $0.9000.
* US dollar surges broadly while commodity currencies, bonds and stocks all dumped after the Fed said it would taper its asset purchases later this year if the economy improves as expected.
* While Fed chairman Bernanke emphasises that tapering was not a tightening and a move in Fed funds was still distant, the market saw it as just the start of a long tightening cycle and brought forward the likely timing of the first rate hike.
* The prospect of an end to free money in the US has sparked a huge unwinding of carry trades with investors rushing to pull money out of emerging markets, which had been very popular due to their higher yields.
* The Aussie is used by many as a proxy for the less liquid emerging markets in Asia adding to the selling pressure. A favoured trade has been shorting the Aussie against the euro, which saw the single currency jump 1.3 pct overnight to A$1.4315 , its highest in more than two years.
* New Zealand dollar also slides 1.3 percent to $0.7855. Investors await a reading of Q1 GDP in the country at 2245 GMT. Economists expect the economy grew 0.6 percent in the quarter, slowing from a strong showing in Q4.
* Aussie and kiwi could fall further if Asian share markets and emerging currencies sell-off in response to the Fed's announcement.
* Investors also anticipate a reading of China manufacturing PMI later in the day. Any fall in the HSBC reading would hurt the Antipodeans given concerns about Chinese demand for their resources.
* TWI Aussie hangs near a 1-1/2-year low hit last
week as Aussie comes under particular pressure as a slowing in the Fed's asset buying would contrast with the possibility of more interest rate cuts in Australia.
* Kiwi support seen at $0.7800, which has held during the kiwi's sell-off since May, although a break below that level would prompt a test around $0.7455 the 2012 low. Offers suspected above $0.7950 expected to cap any upside. * Australian government bond futures tumbled in NY trade as 10-year Treasury yields shot up to 2.63 pct, just under a major chart level at 2.39 pct.
* The three-year contract indicated down 0.120 points at 97.310, while the 10-year contract falls 0.170 points to 96.400.
* New Zealand government bonds sell off in early trade, pushing yields as much as 16.5 basis points higher at the long end of the curve.
Comments
Comments are closed for this article.