Australian & New Zealand dollars thrown about by debt fears

WELLINGTON/SYDNEY: The Australian and New Zealand dollars were looking fragile in early trade on Wednesday after a roller-coaster offshore session, with fears of euro zone debt contagion dominating markets.

The Aussie dollar last at $1.0584, having dropped as deep as $.0525 at once stage overnight after starting the week above $1.0700. Aussie has support at $1.0520 while resistance is seen at $1.0670.

The antipodean pair were dragged lower early in the offshore session as the euro hit a record low against the Swiss Franc and a four-month trough on the greenback as euro zone government bond yields jumped on debt fears.

The euro slid to a seven-month low of A$1.3117 but performed slightly better on the kiwi to be at NZ$1.7057.

New Zealand dollar at $0.8187, after likewise falling sharply to a two-week low of $0.8110, before bouncing back. The kiwi also bounced off its initial support levels about $0.8110, while its next topside target is seen at $0.8233.

The market mood was helped by talk of ECB buying periphery debt and news EU ministers would hold another emergency meeting on Friday.

The US dollar took a hit when Federal Reserve minutes showed some officials had discussed the possibility of further stimulus, while others wanted to tighten.

But sentiment soured agian in late New York trade as Moody's downgraded Ireland's debt to junk status, saying the country will need addition financing before it can return to capital markets.

This followed Italian and Spanish borrowing costs hitting 14-year highs on concerns they would be the next debt-laden countries to need bailing out.

Equity markets fell while gold pushed close to its all-time high as investors sought safer havens.

The yen, was a strong performer, with the Aussie slumping to a near four-month lows of 83.15 yen, while kiwi slumps to 64.12 yen, its lowest since late May.

Aussie outperforms the kiwi to rise to NZ$1.2950, putting more distance from a near six-month low of NZ$1.2789 struck on Monday.

NZ government bond prices tracked US Treasuries higher, with yields down as much as 14 basis points at the long end of the curve.

Australian bond futures ran into profit-taking on recent hefty gains, with the three-year contract down 0.02 points to 95.530 and the ten-year contract down 0.015 points to 95.035.

Copyright Reuters, 2011