Australia, NZ dollars weighed by Covid-19, Fed prospects

SYDNEY: The Australian and New Zealand dollars were slightly lower on Monday, as wide-scale coronavirus restrictions hurt sentiment and traders pondered whether the US Federal Reserve path to rate hikes could hit the antipodean currencies.

The Australian dollar slipped 0.05% to $0.7306, as polls showed a non-trivial chance the economy is already in recession due to pandemic restrictions.

That puts the Aussie on track to finish the month down 0.55% in what would be its third consecutive monthly fall.

In a highly expected speech, Federal Reserve Chair Jerome Powell on Friday said the bank was in no rush to tighten monetary policy but that it could start cutting its asset purchase program “this year”, if the economic recovery goes well

“FOMC tapering, weakening Chinese economic growth, a negative Australia-US bond spread and falling commodity prices will remain intermittent weights on AUD/USD for several months in our view,” CBA analysts said.

“It is worth remembering ... AUD slumped by 8% during the first three months of 2013 taper tantrum (from 22 May).”

The currency could fall below its 10-month low and meaningful support level of $0.70 in the short term, CBA said.

Likewise, the kiwi dollar was 0.11% lower at $0.7001 , reversing some of its earlier gains on Monday, as traders weighted the Reserve Bank of New Zealand hawkish tone relative to the Fed’s, against the country’s toughening pandemic restrictions.

Unlike the US Fed, the RBNZ is expected to lift rates by the end of this year despite a COVID-19 outbreak and ensuing lockdown in the country, which had been living virtually virus-free and without curbs this year.

Bonds were mixed, sending New Zealand yields at the short end of the curve one basis point lower but pushing those at the long end of the curve one basis point higher. The 10-year bond was yielding 1.75%.

Across the Tasman sea, the yield on the 10-year Australian benchmark bond was almost two basis points lower at 1.185%, putting it 12 basis points below US yields. Yields in Australian 3-year bonds fell three basis points to 0.252%.