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SYDNEY: The Australian and New Zealand dollars were holding hefty gains on Monday as markets scaled back expectations for US interest rate rises, while the opening of China’s borders boded well for an eventual recovery in demand there.

The Aussie was firm at $0.6887, having earlier touched a four-month peak of $0.6907.

It jumped 1.9% on Friday to finally clear its 200-day moving average at $0.6846, and now faces resistance at a September high of $0.6915.

The kiwi dollar stood at $0.6346, after climbing 2.0% on Friday to test resistance around $0.6372.

Their US counterpart took a hit last week when soft service-sector data and a mixed jobs report led investors to wager the Federal Reserve would lift rates by only 25 basis points in February, rather than by half a point.

The boost from the reopening of China was further aided by Beijing’s decision to ease restrictions on Australian coal imports into the country.

With analysts now expecting a faster economic rebound in China than first assumed, the yuan climbed to its highest since August and pulled along the Aussie, which is often used by global investors as a liquid proxy for the Chinese currency.

“The twin turbos of a weaker USD and yuan strength has seen the AUD trade above its 200dma for the first time in six months,” said Ray Attrill, head of FX strategy at NAB.

“If China’s moves toward living with COVID-19 succeed and the US dollar depreciation proceeds apace, then $0.7500 is a realistic target for AUD.”

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

The softer US data also fuelled a rally in bonds, which saw Australian 10-year yields fall another 8 basis points to 3.64%, having dived 22 basis points last week.

Markets are still leaning towards another quarter-point hike from the Reserve Bank of Australia (RBA) to 3.35% in February, but trimmed the expected peak for rates to 3.93% from 4.0% last week.

Data out on Monday underlined the damage higher interest rates were already doing to the economy, as approvals to build new homes dived 9% in November, far beyond forecasts of a 1% dip.

Weekly figures from property consultant CoreLogic showed house prices had fallen 8.4% from their May peak, the sharpest decline on record.

“The combination of higher borrowing costs, falling house prices, and the increased cost to build a new dwelling set a negative backdrop for new dwelling supply,” said Maree Kilroy, a senior economist for BIS Oxford Economics.

“A couple more rate hikes from the RBA are anticipated early this year, lifting the cash rate target to a peak of 3.6%.”


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