SYDNEY: The Australian and New Zealand currencies gained against the yen on Monday as Japan’s ruling coalition lost its parliamentary majority, a result that is seen likely to slow further policy tightening there.
The two Antipodeans also hit multi-month lows on the U.S. dollar, adding to their monthly losses of more than 4% as Treasury yields marched higher on bets of a Donald Trump victory in the U.S. presidential election and of a more restrained Federal Reserve in delivering upcoming rate cuts.
The Aussie rallied 0.8% to 101.36 yen , just a touch below a three-month top of 101.69 yen. The kiwi dollar also rose 0.7% to 91.71, although it is still stuck in its recent range of 90 and 92 yen.
The Japanese yen has come under broad pressure and local bonds rallied on Monday as investors see the extended political uncertainty could slow further rate hikes from the Bank of Japan. Voters on Sunday punished Prime Minister Shigeru Ishiba’s ruling coalition, leaving no party with a clear mandate to lead the country.
Against the U.S. dollar, the Aussie slipped 0.1% on Monday to $0.6596, the lowest since mid-August. With support at the 200-day moving average of $0.6628 gone, bears are targeting the $0.6575/60 area after a 1.5% loss last week.
Australia, NZ dollars shaky, set for fourth straight week of losses
The kiwi hit a three-month low of $0.5971, having ended last week 1.5% lower. It is now testing a key support level of $0.5975.
“The (AUD) FX rate has lost any correlation with industrial metals, Chinese/HK equity and the S&P500 and even screens cheap vs AUS-US 2-year forward interest rate expectations,” said Chris Weston, head of research at Pepperstone.
“Relationships come and go, but there is a trade-off between the flow of capital (the technicals) which argues for further downside, and the classic drivers of the exchange rate, which suggests the sell-off is perhaps overdone.”
Indeed, the turn of fortunes for the Australian dollar could come as soon as on Wednesday when Australia’s third-quarter inflation data is due.
A Reuters poll showed headline inflation is expected to ease to 2.9% thanks to the government’s electricty rebates, but core inflation, measured by the trimmed mean, likely rose 0.7% in the quarter to an annual rate of 3.5%.
Analysts at Commonwealth Bank of Australia, which tipped a December rate cut from the Reserve Bank of Australia, said a quarterly rise of more than 0.7% for core will see them jettison their call.
Swaps imply a 30% probability of a rate cut by the year end, while the first easing is seen most likely in April next year.
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