Australian, New Zealand dollars stall in holiday stupor

SYDNEY/WELLINGTON: The Australian and New Zealand dollars were largely in a holding pattern on Monday, with investors in no mood to do much ahead of a two-day Christmas break and as a public holiday in Japan further drained liquidity in Asia.

The Aussie was steady at $0.8922, still enjoying a bit of the short squeeze that lifted it from a 3-1/2-year low of $0.8820 late last week. While the market remains bearish on the Aussie, momentum is lacking for now leaving the trough safe into year-end, traders said.

Also marking time, the New Zealand dollar was little changed at $0.8194 but off a two-week low of $0.8149 reached on Friday. "In the short term, the A$ is a bit oversold and may be due for a bounce, but over the year ahead the combination of Fed tapering and RBA jawboning are likely to see its downtrend remain in place," said Shane Oliver, head of investment strategy at AMP Capital.

The Aussie is down 14 percent against the dollar this year and has fallen nearly 20 percent versus the euro. On a trade-weighted basis, it is 11 percent lower, a magnitude not seen since 2008 at the height of the global financial crisis.

Last week's drop in the Aussie was driven by a stronger US dollar, which advanced broadly after the Federal Reserve announced it was ready to start scaling back stimulus.

The kiwi is expected to remain subdued going into the holiday season, but will be buoyed by expectations of interest rate rises early next year, which will balance the renewed strength of the US dollar following the Fed's decision to taper. "The downward pressure on the NZ dollar is expected to be relatively muted given the continued strong fundamentals supporting the NZ dollar," said ASB economist Christina Leung.

Short-term support for the kiwi was seen progressively at $0.8185, its 100-day moving average, its 200-DMA at $0.8165, and more strongly $0.8140, the double bottom of the past two weeks. Offers are seen at $0.8280.

Australian government bond futures drifted higher with the three-year bond contract 1 tick higher at 97.010.

The 10-year contract gained 3 ticks to 95.785. New Zealand government bonds had a slight offered tone, sending yields 1.5 basis point higher across the curve.