Australia, NZ dollars caught out by oil spill, soft data

SYDNEY: The Australian and New Zealand dollars were on the defensive on Friday after a plunge in oil prices spilled over into other commodities, while domestic economic data turned soft and broke a run of strong releases.

A spike in Treasury yields to 14-month highs also underpinned the US dollar while slugging local bond markets.

The Aussie eased back to $0.7742, from an overnight top of $0.7849, leaving it flat for the week so far. Resistance remains stiff in the $0.7840/50 zone, while support lies around $0.7700.

The kiwi dollar lapsed to $0.7154 and away from a peak of $0.7268, leaving it down 0.3% on the week. A break of support at $0.7150 could see a test of the March trough at $0.7100.

Much of the pullback coincided with a 7% slide in oil prices, which dragged on commodity-linked currencies in general.

"With crude prices leading commodities lower, the risks of further weakness for the A$ are clear to see," said analysts at Westpac in a note.

For the kiwi, they noted the $0.7100 area had provided solid support over the past three months. "Medium-term, we remain in a buy-dip state and target $0.7550 by May." The Aussie was not helped by data showing retail sales fell 1.1% in

February, when analysts had looked for a rise of around 0.4%. Spending was again hit by coronavirus lockdowns, this time in Victoria and Western Australia.

That took the shine off Thursday's surprisingly strong jobs report, though analysts assumed sales would bounce back this month as the country is mostly COVID-free and vaccines are being rolled out in larger numbers.

The kiwi was still weathering Thursday's report showing the New Zealand economy shrank by 1% last quarter, putting the country at risk of a technical recession.

The soft readings did help offset a little of the global pressure on local bonds, with NZ 10-year yields steadying at 1.848% and off the recent peak of 2.048%.

Yields on Australian 10-year paper eased to 1.82%, from 1.87%. That left the spread over Treasuries at 12 basis points, a long way from the 39 basis points seen at one stage of the mass sell-off in February.

Meanwhile, European yields have been held back by European Central Bank bond buying, giving the Aussie a marked advantage over the euro. The single currency slipped as far as A$1.5261 this week, close to its lowest since January 2018.