Australia, NZ dollars firm after US intervenes in SVB failure

SYDNEY: The Australian and New Zealand dollars rebounded from their four-month lows on Monday after US regulators reassured markets that they would protect customer deposits to prevent contagion from the failure of Silicon Valley Bank.

The Aussie jumped as much as 1% to $0.6650 before trimming some of the gains to $0.6609.

It now faces resistance at the 14-day moving average of $0.6699, after tumbling 2.7% last week to a four-month low of $0.6565.

The kiwi rose 0.2% to $0.6148, after falling 1.4% last week to as low as $0.6085, the lowest in almost four months.

It was hovering just below the resistance level of $0.6165.

The US government announced several measures early on Monday Asian hours to shore up confidence in the banking system and said all SVB customers would have access to their deposits starting on Monday.

Officials also said depositors of New York’s Signature Bank, which was closed Sunday by the New York state financial regulator, would also be made whole at no loss to the taxpayer.

The concern about financial stability and a US payrolls report from Friday showing slower wage growth led investors to speculate the Federal Reserve would now be reluctant to rock the boat by hiking interest rates by a super-sized 50 basis points this month.

Fed fund futures implied only a 28% chance of a half-point hike, compared to around 70% last week.

Australia, NZ dollars pinned near four-month lows, bears in control

“From a macro perspective, if SVB does not pose systemic risks, and its troubles arose from bespoke risks, as appears to be the case, it does not make sense for the Fed to alter course and allow the inflation problem to become more embedded,” ANZ analysts said in a client note.

Yields on two-year Treasuries plunged 10 basis points to 4.4876% early on Monday, after a tumble of 31 bps on Friday. That compared with last week’s 5.08% peak.

Australian government bond yields tracked their overseas counterparts on Monday, with the yield on three-year bonds falling 14.5 basis points to 3.198%, the lowest since early February, and 10-years also easing 10 basis points to 3.497%.

Markets now see a real chance that the Reserve Bank of Australia will pause its rate hikes in April with a 74% probability.