Australia, NZ dollars hit pause awaiting clarity on Fed tapering

SYDNEY: The Australian and New Zealand dollars took a time out on Thursday as investors awaited more guidance on US monetary policy and whether the recent spike in Treasury yields was just a flash in the pan.

The Aussie was holding firm at $0.7750, having topped at $0.7781 overnight. That left it up from a $0.7666 low hit early in the week, but short of the recent high at $0.7819 which now marks stiff resistance.

The kiwi dollar hovered at $0.7192, after running into resistance around $0.7239. Support comes in at the week low of $0.7148, while the recent high at $0.7314 will act as a major chart barrier.

Treasuries yields eased back a little overnight after more Fed officials played down the chance of a tapering in asset buying this year.

Markets are now anxious to hear from Fed Chairman Jerome Powell later on Thursday, where any hint of an eventual tapering could send yields surging once more.

For now, yields on 10-year Australian debt had dipped to 1.043%, from a seven-month peak of 1.118% at the start of the week. That left the spread with US bonds at zero, down from as much as +11 basis points in December.

The first Australian T-note sale of the new year on Thursday drew strong demand with an April 2021 line drawing bids for almost seven times the A$750 million ($581.03 million) on offer, producing an average yield of just 0.0089%.

Analysts, however, are wondering whether the Reserve Bank of Australia (RBA) will extend its current A$100 billion bond buying campaign past the deadline of April given the surprising strength of recent economic data.

Job vacancies, retail sales, home building and house prices have all indicated a brisk recovery is underway, seemingly lessening the need for more monetary stimulus.

"The risk is that unemployment falls more sharply than currently forecast by the RBA and Treasury," said Tapas Strickland, a director of economics at NAB.

"While very welcome, that would likely have significant implications for the future settings of unconventional policy measures and in turn for market pricing."