SYDNEY/WELLINGTON: The Australian dollar climbed to seven-month peaks against a soggy euro and Swiss franc on Wednesday, as investors continued their love affair with carry trades, giving it solid support versus its US counterpart.
The euro fell to A$1.4431, its weakest level since November, having pierced key support at A$1.4500.
It dipped to a one-month low of NZ$1.5819 against the New Zealand dollar.
It has shed more than 4 cents against the Aussie in two weeks, and is down around 6 percent this year.
The latest blow came after the European Central Bank (ECB) cut interest rates to record lows, encouraging investors to enter carry trades, where they borrow at a low rate in euros to buy higher yielding assets such as the Aussie and kiwi. Technicals suggest the next major support at A$1.4215, the 38.2 percent retracement of the 2012-2014 rally.
The Aussie rose to a seven-month high against the safe-haven Swiss franc at 0.8439, showing a gain of 6 percent so far this year. That helped the Aussie hover around three-week highs against its US counterpart. It was last at $0.9371, having gone as far as $0.9385 overnight where it met heavy resistance. Dealers cited sellers between $0.9380 and $0.9400. Resistance was seen
at $0.9410, the May high. Some analysts, however, don't see the currency able to hold gains against the US dollar over the longer term.
"The AUD has rallied over the past week as offshore investors elect to continue to deploy carry trade/yield seeking portfolio flows," said Annette Beacher, head of Asia-Pacific research at TD Securities in Singapore.
"As long as the US script is followed and there are much higher US yields by year-end, we target $0.90," she added. On a trade-weighted basis, the Aussie stood a whisker away from peaks unseen since November. At home, a measure of Australian consumer sentiment steadied in June as the shock from May's unpopular federal budget began to fade.
The New Zealand dollar held its recent modest gains at $.8530, with investors focused on Thursday's central bank rate decision.
The Reserve Bank of New Zealand (RBNZ) is seen as almost certain to raise its cash rate by 25 basis points to 3.25 percent, while investors looking for a more dovish tightening path may be disappointed.
"We suspect the RBNZ will show sufficient commitment to its rate hiking process to extend the near-term bounce in the New Zealand dollar," said Bank of New Zealand senior strategist Kymberly Martin.
Indeed, market pricing on the course of rates has firmed to 96 basis points of tightening seen over the next 12 months, up from 81 basis points at the start of the week.
Near-term support for the kiwi was seen at $0.8490, around the 100-day moving average, with resistance at last week's high of $0.8555.
The strength of local domestic activity was highlighted by data showing a 1.3 percent rise in electronic card retail sales in May, the biggest monthly rise in seven months and more than double expectations. New Zealand government bonds fell in price, with yields rising as much as 4.5 basis points. Tracking US Treasuries, Australian government bond futures fell to one-month lows, with the three-year bond contract down 3 ticks at 97.125.
The 10-year contract eased 5.5 ticks to 96.160, leading to a bearish steepening of the yield curve.
Likewise, yields on 10-year cash bonds inched up to 3.85 percent, the highest since mid-May. They have gained 23 basis points in two weeks.
New Zealand's 10-year debt jumped to 4.42 percent, from a low of 4.22 percent last month.
Comments
Comments are closed for this article.