Australia, NZ dollars consolidate after running into resistance

SYDNEY: The Australian and New Zealand dollars were consolidating recent gains on Thursday as markets globally awaited some clarity on US monetary policy, while upbeat domestic data provided some support.

The Aussie was holding at $0.7261, having again stalled at resistance around $0.7280/90. That was well above the 10-month trough of $0.7107 hit last week but the currency needs to get past $0.7310 to keep the rally going.

The kiwi dollar had levelled out at $0.6961, after meeting resistance at $0.6983. Again it was comfortably above the recent $0.6807 low, but a break through $0.7000 would improve the technical outlook.

Australia, NZ dollars battle to extend gains as lockdowns drag

The Aussie got some help from data showing Australian business investment beat expectations with a rise of 4.4% in the second quarter, while firms also lifted spending plans for the 2021/22 year.

The strength made it more likely the gross domestic product report for the second quarter due next week will show the economy was growing at a reasonable pace, at least until the current round of coronavirus lockdowns slammed it into reverse.

With the economy set to contract sharply this quarter and the government having to ramp up emergency spending, the fiscal outlook has also deteriorated.

ANZ market economist Hayden Dimes estimates the government's budget deficit will likely widen to around A$130 billion-A$140 billion ($94-$102 billion)in the year to June 2022, from a projection of A$106.6 billion.

That in turn suggests the government will have to revise up its borrowing projections, just a few months after cutting them.

For now, it having no trouble selling its debt with auctions routinely heavily oversubscribed. A new benchmark offer of inflation indexed bonds earlier this week sold A$3.25 billion of paper and drew bids worth A$7.5 billion.

Such demand has helped Australian government debt outperform Treasuries with 10-year yields of 1.18% trading 15 basis points below US levels.

That gap could widen further should Federal Reserve Chair Jerome Powell sound hawkish in a keynote speech on Friday.

New Zealand bond yields are up at 1.69% as investors are still wagering on a rate hike from the Reserve Bank of New Zealand (RBNZ) this year.

Swaps imply around an 80% chance of a quarter-point hike in October, with a good chance of a further move in November.

The Bank of Korea on Thursday showed the spread of the Delta variant alone was no impediment to tightening by raising its rates for the first time in three years.