Australia, NZ dollars climb as iron ore prices soar

SYDNEY: The Australian and New Zealand currencies rose against the US dollar on Monday, underpinned by higher iron ore prices and a weaker greenback amid speculation the US Federal Reserve will shun talk of tapering bond purchases at its policy meeting.

The commodity-sensitive Australian dollar was up 0.34% at $0.7774, as iron ore soared more than 4%, fuelled by structural supply shortage and robust steel demand.

The Aussie faces resistance at $0.7816 and has support at $0.7730.

"The huge jump in iron ore prices in the face of record Chinese demand and the ongoing constrained supply remains a super potent positive for the Australian dollar," Westpac analysts said, noting the expectation of volatile trading within the wider $0.76 to $0.80 area.

The kiwi dollar climbed 0.39% to $0.7216, having posted gains for the past two weeks and on track to be 3.3% ahead this month and reverse its losses in March almost fully.

"We remain of the broad view that the post-vaccine rebound in the US should be good for global growth and Asia, and thus cyclical currencies and commodities, and that speaks to further upside risks to the NZD, but we're watching bond yields closely," said analysts from ANZ Banking Group.

The dollar index edged down ahead of the Fed's next policy meeting that ends on Wednesday.

Fed Chairman Jerome Powell is likely to face questions over whether an improving labour market and rising coronavirus vaccinations warrant a withdrawal of monetary easing, but most analysts expect him to say such talk is premature, which would put downward pressure on Treasury yields and the dollar.

Yields on 10-year Australian bonds were unchanged at 1.68%, to trade at a 9 basis points yield spread over US Treasuries.

Traders will watch out for first-quarter consumer price data in Australia on Wednesday, which is expected to show inflation still undershooting the country's central bank's 2-3% target despite hefty monetary and fiscal stimulus.

"This week's 1Q21 CPI release will be the defining risk event for domestic bonds," Westpac rates strategists said.

Yields on New Zealand 10-year bonds were trading 4 basis points higher at 1.625%.