SYDNEY: The Australian and New Zealand dollars joined a global risk rally on Monday as investors chose to focus on the future prospects of a Covid-19 vaccine rather than the ever-expanding tally of new cases now. The Aussie added 0.3% to $0.7291, again nearing a recent nine-week peak of $0.7340.
The kiwi dollar climbed 0.6% to $0.6883 and back toward the 19-month high of $0.6915 hit last week. It was also within striking distance of a $0.6938 top from March 2019, a break of which would be bullish technically.
The Reserve Bank of New Zealand (RBNZ) wrongfooted many last week by playing down the chance of negative rates.
That, combined with a global rally in risk assets, has seen New Zealand 10-year yields spike to 0.865% from just 0.58% at the start of this month.
Australian yields have also climbed, but not by nearly as much. The 10-year was last at 0.899%, compared to 0.83% at the start of November.
The divergence is partly due to the intervention of the Reserve Bank of Australia (RBA) which recently outlined plans to buy A$100 billion of longer-dated bonds over six months.
It is set to buy A$3.5 billion of debt on Monday, in part to keep three-year yields near a target of 0.10%. They were last at 0.13%, having briefly been as high as 0.15%.
Such purchases are also helping absorb a flood of new supply as Australia borrows to fund coronavirus stimulus. The government's finance office plans to sell A$6 billion of May, 2041 bonds this week in a syndicated tap.
Analysts at Westpac saw scope for the kiwi to reach $0.7400 or $0.7500 given the domestic economy was enjoying a robust recovery from its coronavirus lockdown, including a fresh surge in house prices.
"The RBNZ has been surprised by this economic strength, which in turn has reduced the magnitude of further stimulus required," they wrote in a note.
"Markets have responded by pricing out rate cuts, pushing term yields, and thus yield differentials, higher."
"The last time, domestic buyers bought just over 70% of the issuance," noted ANZ rate strategist Hayden Dimes. "With yields at these longer dated tenors now trading at a positive spread to US Treasuries, we think demand from offshore might be a little stronger." "Regardless, we think demand will be strong."
Comments
Comments are closed for this article.