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Markets

Australia, NZ dollars hold steady as dollar languishes

  • The central bank, however, is widely expected to keep its foot hard on the stimulus pedal.
Published May 25, 2021

SYDNEY: The Australian and New Zealand dollars were slightly higher against the greenback on Tuesday, with the dollar softer following weaker-than-expected data and as Federal Reserve officials allayed fears of policy tightening.

The Aussie was 0.05% higher at $0.7758, after touching a low of $0.7706 overnight, as China took steps to curtail excessive speculation in iron ore and other commodity markets.

The commodity-price sensitive currency has been trading within its tight range of $0.7635 and $0.7891 since April 14.

Analysts, nevertheless, see the antipodean currency as "undervalued relative to the level implied by iron ore prices," Commonwealth Bank strategists said in a note.

"In our view, iron ore prices have room to pare back some of this year's stellar gains without dragging AUD/USD lower."

China's market regulators warned industrial metal companies to maintain "normal market order" during talks held on the weekend about the significant gains in metals prices this year.

The Chinese government also said last week that it would manage "unreasonable" price increases for commodities such as copper, coal, steel and iron ore.

The kiwi dollar was 0.11% higher at $0.7223, having also fallen to $0.7158 overnight. Its May peak stands at $0.7304, while support lies around $0.7143 and $0.7116.

The US national activity index reading of 0.24 against expectations above 1, along with dovish comments from Federal Reserve officials, have quashed bets that US rates will rise soon due to inflationary pressures.

Meanwhile, traders will be watching for any hawkish comments from The Reserve Bank of New Zealand on Wednesday, as a surprisingly rapid recovery in the economy allows it to upgrade forecasts for activity and inflation.

The central bank, however, is widely expected to keep its foot hard on the stimulus pedal.

New Zealand government bonds were slightly higher, leading to yields falling 1-to-2 basis points across the curve.

Australian 10-year government bond yields were one basis point lower at 1.64%, a spread of 3.8 basis points above US Treasuries, which were steady overnight.

The futures contract for the same maturity were steady at 98.36, while the three-year bond contract was also steady at 99.78.

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