Australia, NZ dollars rebound after setback, still headed for weekly gains

SYDNEY: The Australian and New Zealand dollars rebounded on Friday, clawing back losses from a risk-off slump overnight, while the Aussie’s impressive run against the kiwi to new 12-year highs ran into some resistance.

The Aussie rose 0.3% to $0.6548 after giving up all of its post-jobs gains overnight to finish 0.2% lower as Wall Street tumbled. It is set for a weekly gain of 0.8%, with near-term resistance at $0.6580.

The Australian dollar is often sold as a proxy for global risk and has slid during recent bouts of global market volatility, although rising expectations that the Reserve Bank of Australia might be done easing have helped cushion the blow.

The kiwi rose 0.5% to $0.5680, having slipped 0.2% overnight to as low as $0.5636. It has stabilised above the seven-month trough of $0.5607 with a weekly gain of 0.5%.

Giving support to the kiwi, local data showed manufacturing activity in New Zealand expanded in October, with new orders hitting their highest levels in three years as recent interest rate cuts worked their way through the economy.

The Reserve Bank of New Zealand confirmed it will ease restrictions on mortgage loan-to-value ratios from December 1.

The Aussie also slipped 0.4% to NZ$1.15, having retreated overnight from a fresh 12-year high of NZ$1.1634, as investors booked some profits from a recent impressive run.

“Near term, we think the cross has the potential to test levels close to 1.17/18 assuming, as we do, the RBNZ cuts again on November 26,” said Ray Attrill, head of FX strategy at National Australia Bank.

“But if we are right on our outlook for the NZ economy, then soon (before year-end) we are likely to see evidence of a turn in the NZ data,” he said, adding that it suggested “further gains in AUD/NZD are less certain than short-term rate differentials alone would imply.”

The RBNZ is widely expected to cut interest rates by 25 basis points to 2.25% on November 26, with a 10% risk that it might surprise with a half-point reduction.

Australian bond yields fell on Friday but were set for three straight weeks of increases.

Three-year government bond yields slipped 2 basis points to 3.784% after having risen more than 40 bps over the past three weeks.