Australia dollar edges lower as growing virus lockdowns bite

SYDNEY: The Australian dollar drifted lower against the greenback on Monday, as a spike in coronavirus cases involving the highly infectious Delta variant triggered lockdowns and tighter restrictions that hurt investor sentiment.

The Australian dollar, a liquid proxy for risk, was 0.02% lower at $0.7586, after hitting a near six-month trough of $0.7478 earlier this month. It has support at about $0.7566.

The Aussie is far from its 2021 high of $0.8007 reached in February, which at the time was buoyed by market optimism about a speedier than expected recovery and high commodity prices.

On Monday, the antipodean currency was facing resistance at around $0.7607, as economists predicted lockdowns introduced over the weekend to contain small but fast-growing outbreaks of the Delta COVID-19 variant would cost the Australian economy about A$2 billion per fortnight.

The kiwi dollar was trading flat at $0.7069, as investors took some comfort that the country's capital, Wellington, has so far escaped contagion from the outbreak in Australia beyond one case.

The kiwi has support at around $0.7060 and resistance at $0.7080. Its central bank has held rates at record lows but became one of the first globally to flag a hike in rates as early as September next year as the country rapidly emerges from its pandemic slump.

Strategists said the risk of an increase in rates as soon as this year was rising, and this was in turn lifting short-term rates.

New Zealand bonds fell across the curve on Monday, pushing yields in the short- and medium-term part of the curve 3-to-4 basis points higher.

"Wellington remains in Level 2, but with no cases yet, markets are taking a glass-half-full view and it has not affected the NZD," ANZ strategists said in a note. New Zealand's capital, which moved to Alert Level 2 on Wednesday, will now remain at that level until Tuesday.

"But it isn't over yet: the situation over the Tasman is more severe. While it doesn't directly affect the NZD much, it could via its correlation with the AUD, and via the knock-on impact on the trans-Tasman travel bubble."

New Zealand halted quarantine-free travel from Australia on Saturday for three days, saying there were too many cases and outbreaks.

Australian government bond yields were mixed, with the 3-year bond yield falling two basis points to 0.44%, the 2-year yield remaining unchanged at 0.83%, and the 10-year bond yield moving three basis points higher to 1.55%.