Australia, NZ dollars restrained as bond selloff resumes

SYDNEY: The Australian and New Zealand dollars flatlined on Thursday after another spike in global bond yields spooked investors away from riskier assets, though sentiment was aided by data showing a record Australian trade surplus.

The Aussie stood at $0.7785, having fallen from $0.7839 overnight when a jump in US Treasury yields knocked equities lower. Importantly, it managed to stay clear of major support around $0.7693, keeping the recent uptrend alive.

The kiwi dollar was holding at $0.7251, after also easing from a $0.7302 top overnight.

It has solid support around $0.7210.

The renewed selloff in Treasuries rippled though local markets with yields on Australian 10-year bonds popping back up to 1.79%, from a low of 1.628% at the start of the week.

Cash three-year yields were restrained at 0.14% as the Reserve Bank of Australia (RBA) maintained its 0.1% target.

Yet futures sank 6 ticks to 99.645, implying an yield of 0.355%.

While the RBA has now bought around 60% of the cash April 2024 bond on issue, it has less control of the futures market which is far more deep and liquid.

In any case, the central bank has sounded relaxed about the rise in yields given it largely reflects optimism about the global economy with vaccines being rolled out and US fiscal stimulus on the way.

The domestic economy is faring well with figures out this week showing the strongest two quarters of growth on record, while the country's trade surplus swelled to an historic high of A$10.1 billion ($7.86 billion) in January.

"Australia has posted 37 successive monthly trade surpluses," said CommSec chief economist Craig James, noting the rolling 12 month total was also a record at A$80.1 billion.

"The trade surplus provides fundamental support for the Australian dollar."

Across the Tasman, Reserve Bank of New Zealand Governor Adrian Orr emphasised that central banks were deliberately looking to push inflation above target to make up for years of underachieving.

That was one reason New Zealand 10-year yields were up at 1.87%, a chunky 39 basis points above Treasuries.