SYDNEY/WELLINGTON: The Australian and New Zealand dollars edged up on Tuesday, as the outlook for sustained monetary policy support from the European Central Bank and Bank of Japan favoured carry trades.
The Australian dollar was holding at $0.8710, having met stiff resistance just ahead of $0.8800 on Monday. The Aussie received some support after Australia and India said they will push for a free trade pact.
The news came a day after the finalisation of a trade agreement between China and Australia. Also underpinning the currency was the outlook for aggressive stimulus in Japan and in Europe, which should encourage investors there to seek higher yields offshore. This spurs carry trades where investors borrow in economies with low rates a
nd use the proceeds to buy financial assets where rates are higher.
"I see a risk for the AUD/USD to be squeezed higher because of capital flows into Australia," said Greg Gibbs, a strategist at Royal Bank of Scotland in Singapore.
The Aussie held at 101.59 yen, having touched a 20-month peak of 102.40 on Monday and up nearly 3 yen in a week. The euro was pressured at A$1.4292, having slipped four cents in the past month.
A surge in capital inflows won't be welcomed by the Reserve Bank of Australia which repeated in the minutes of its November policy meeting that the Aussie dollar remained above most estimates of its fundamental value. Likewise, the New Zealand dollar climbed to a two-month high of NZ$1.5715 per euro and near a seven-year peak around 92.80 yen.
The kiwi nudged up to $0.7931, from $0.7914 in early trade.
It peaked at $0.7975 on Monday following better-than-expected retail sales data.
Technical resistance was found at $0.7950, its 55-day moving average which has held since the kiwi's sell-off in July. Investors now await the results of a global dairy auction later in the day.
New Zealand government bond prices slipped, edging yields on 2020 bonds 2.5 basis points higher.
Australian government bond futures fell, with the three-year bond contract down 2 ticks at 97.400. The 10-year contract eased 3.5 ticks to 96.685.
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