SYDNEY/WELLINGTON: The Australian and New Zealand dollars powered up to multi-week peaks on Tuesday after hopes of an imminent US debt deal lifted risk sentiment from stocks to commodity-linked currencies.
The Aussie gained a third of a cent on the day to a four-month high of $0.9534, having broken key resistance at $0.9530. The next major barrier was seen at $0.9665.
Dealers said leveraged funds buying AUD/JPY supported the Aussie after top US senators signalled they could soon reach a deal to reopen the US government and avert a possible debt default for the time being.
"If there is a resolution, the Aussie, euro and pound will more likely continue to appreciate against the USD," said David Scutt, a trader at Arab Bank Australia.
"Until then, it's only a matter of time until we see more positive momentum from Asian equities," he added, having revised his forecast of the Aussie to $0.9850 by year-end, from $0.8600 cents.
Also helping to underpin the Aussie, minutes of the Reserve Bank of Australia's (RBA) October policy meeting showed the central bank was in no hurry to cut rates.
Perhaps more importantly for dealers, it did not look overly concerned by the recent currency rise. The Aussie has gained more than 6 cents since late August, partly because investors judged the RBA had turned more neutral on policy which prompted markets to pare back expectations for more rate cuts.
Interbank futures <0#YIB:> show a one-in-five chance of a rate cut by Christmas, rising to one-in-three early next year. Swap markets are actually pricing in 15 basis points of tightening on a one-year horizon.
A majority of economists expect a rate cut by year-end as the RBA looks to offset a strong currency and stimulate a slowing economy.
The New Zealand dollar was on the front foot and close to a three-week high at $0.8376 on improved hopes for a resolution of the US fiscal deadlock.
It looked to have broken through solid resistance at $0.8350, and is now eyeing the 4-1/2-month high of $0.8445 set last month.
"Currency markets remain optimistic that a deal is imminent with long carry versus short safe haven trades being put on," said ANZ senior economist Mark Smith in a market note.
The currency ignored a speech by the deputy governor of the Reserve Bank of New Zealand, restating the bank's rationale for imposing limits this month on the amount banks can lend on low deposit mortgages.
"What they're saying is that they do know that the next move in interest rates is up, they do know that the time is rapidly approaching, but that they just want to buy themselves some time before raising," said Bank of New Zealand head of research Stephen Toplis.
Local attention will turn to Wednesday's third quarter inflation, which is expected to show a rise of 0.9 percent in consumer prices, the strongest rise in two years, although still at the bottom of the central bank's target band.
New Zealand government bond prices were softer, raising yields by as much as 2.5 basis points.
The pick up in risk appetite slugged Australian government bonds, pushing Australian 3-year cash yields to 3.15 percent , the highest since March. Three-year bond contract fell 7 ticks to 96.830 as did the 10-year contract at 95.850.
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