SYDNEY: The Australian and New Zealand dollars were looking to end the week on safer footing on Friday having survived a bearish brush with the downside as speculators booked profits on long US dollar positions.
The Aussie had clambered back up to $0.7180 and away from a recent low of $0.7090, to leave it a shade firmer on the week so far. It briefly made it as far as $0.7224 overnight before running into resistance.
The kiwi dollar crawled to $0.6794, and off a 13-month trough of $0.6702 touched early in the week. However, it failed to sustain the rally beyond resistance in the $0.6825/35 area which leaves it vulnerable to further setbacks.
Much of the bounce was merely due to profit taking on the US dollar after the Federal Reserve confirmed the market's hawkish stance by tipping three rate hikes next year.
A surprise rate rise from the Bank of England also forced a round of short covering in sterling, mainly against the US currency.
The Reserve Bank of Australia (RBA) still insists it will not be hiking next year, though it is now open to ending bond buying in February rather than May.
The case for an early move was reinforced by a stellar November labour report which saw a record 366,100 new jobs created and a drop in the jobless rate to 4.6%.
"With the labour market data coming in much stronger than the RBA expected and a revision in other forecasts likely, an end to QE altogether in February is the most likely option in our view," said ANZ economist Felicity Emmett.
Such a move would only encourage market wagers the RBA will also lift rates much earlier than planned, with a move to 0.25% fully priced in by June.
Adding to the argument was a surprisingly loose budget outlook from the Australian government which projected a much larger budget deficit for 2021/22 than analysts had expected, mainly due to extra spending commitments.
The bond market did find some comfort in a lower borrowing requirement, with the government cutting its bond issuance for 2021/22 by A$25 billion to A$105 billion.
Yields on 10-year bonds were down about 4 basis points on the week at 1.604%, to be 18 basis points above Treasuries.
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