Australia, NZ dollars take stock after wild week, China supports

SYDNEY: The Australian and New Zealand dollars were flatlining on Friday after a week of wild swings as a run of upbeat jobs data supported their U.S. counterpart, while bonds held gains on signs global inflation was cooling.

The Aussie was taking a breather at $0.6764, having ricocheted between a low of $0.6689 and a high of $0.6887 in just the last three days. That left it down 0.7% for the week so far and still short of its 200-day moving average at $0.6845.

It still fared better than the kiwi dollar which was down 1.8% for the week at $0.6234 and threatening major chart support around $0.6200.

The Aussie was aided by demand from Japanese investors which delivered gains of 1.2% for the week to 90.46 yen.

It was also still benefiting from reports China was preparing to resume coal imports from Australia after a two-year freeze, spurring hopes Beijing might also ease bans on wine and barley.

Andrew Boak, an economist at Goldman Sachs, said the resumption of coal exports to China would be a positive overall, but the near-term economic impact might be limited because miners had been so successful in finding alternative customers.

“As a result, while coal exports to China have fallen to zero, overall coal export volumes are only 9% lower than December 2019 levels,” Boak said.

Higher global prices for coal also meant export earnings from the mineral had ballooned last year even without China as a buyer.

Instead, the recent easing of China’s border restrictions could actually prove more meaningful, Boak said.

“We expect that to provide a 10-20 basis point tailwind to Australian GDP growth in 2023 via a pick-up in international tourism and business travel.”

For bonds, the week has been a bullish one thanks to downside surprises on inflation in Europe and steep falls in the cost of oil and shipping.

Yields on the Australian 10-year bond were down 22 basis for the week at 3.82%, while the yield curve flattened as the short end lagged well behind.

Indeed, market pricing for the current 3.1% cash rate has been creeping steadily higher in the past few weeks and futures now imply rates will peak around 4.0% compared with 3.5% back in early December.

The timing of the top has also been pushed out to September from June, perhaps reflecting the U.S. Federal Reserve’s position that its rates will have to go higher for longer to stamp out inflation.