Australia, NZ dollars cap strong month courtesy of commodities, yields

SYDNEY: The Australian and New Zealand dollars marked time on Thursday with bulls content to consolidate a month of hefty gains as commodity prices remained high, and bond yields even higher.

The Aussie was holding at $0.7510, a gain of 3.4% for the month.

It topped out at $0.7540 earlier in the week and just short of its high from last October of $0.7555.

The kiwi dollar stood at $0.6972, after touching a four-month high of $0.6990 overnight.

That put it 2.9% firmer for the month and close to major resistance at $0.7000.

“If we are right the war leads to a structural increase in energy prices, there is more upside to AUD this year,” said Carol Kong, a currency strategist at CBA.

“We expect AUD/USD will soon break above its resistance near $0.7516 and lift higher to $0.7673.”

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The Aussie has been boosted by flows from the yen as the Bank of Japan (BOJ) acts aggressively in bond markets to keep yields down near zero.

Australian 10-year yields in contrast have climbed 63 basis points this month to 2.791%. That meaty yield advantage has helped the Aussie climb almost 10% on the yen this month to reach 91.79.

Domestic economic data was again upbeat with approvals to build new homes surging a huge 43.5% in February, to more than recover from January’s 27.1% dive.

The wild swings suggests the approvals process was disrupted by a wave of Omicron cases in January, and the bounce implies housing construction will remain strong for some time.

There was also positive news on the jobs front with vacancies climbing 6.9% in the February quarter to a record 423,500, with gains across all industries.

Such strength suggests unemployment will soon break under 4% for the first time since the 1970s, several months earlier than expected by the Reserve Bank of Australia (RBA).

That might make it harder for the central bank to stay dovish on policy, especially given analysts suspect consumer price figures for the first quarter due on April 27 will show core inflation spiking above 3%.

The RBA meets next week and the market will be keen to see if it retains a pledge to be “patient” on rate hikes or waters it down in some way.

Futures have long been priced for a hike to 0.25% in June, and a further string of rises to 1.75% by year end.