Australia, NZ dollars gain on greenback as yen climbs
- The Aussie added 0.3% to $0.7041, after earlier hitting a seven-week top of $0.7069
SYDNEY: The Australian and New Zealand dollars rose to multi-week highs on Monday as markets suspected Japan was intervening again to lift the yen versus the greenback, while talk of another peace deal in the Gulf aided risk sentiment.
Australian bonds also continued to outperform their US counterparts, narrowing the spread over Treasuries to its smallest since November last year.
The Aussie added 0.3% to $0.7041, after earlier hitting a seven-week top of $0.7069. Resistance lies at $0.7088 and $0.7200, with support around $0.6922.
The kiwi dollar firmed 0.1% to $0.5894, just off a two-month high of $0.5905.
The next bull target is a May peak at $0.5993, with support down at $0.5762.
The Aussie lost another 0.8% on the yen to hit a four-month low at 109.34, while the greenback slid 1.0% to 155.75 yen.
The Aussie lost more than 3% on the yen last week after the US Treasury took the rare step of joining Japan in intervening.
“All we can say, with some confidence, is that we are unlikely to see new cycle highs for USD/JPY and most JPY crosses, given the now ever-present threat of intervention,” said Ray Attrill, head of FX Strategy at NAB.
“For USD/JPY, we should now be thinking in terms of a 155-162 range, and for AUD/JPY more like 108-113 from 110-115 previously.”
Yields on Australian 10-year bonds slipped 6 basis points to 4.940%, shrinking the premium over Treasuries to 20 bps from around 60 bps a few months ago.
Bonds got a boost last week when inflation data surprised on the downside and led investors to lengthen the odds on a further rate hike from the Reserve Bank of Australia.
Markets imply almost no chance the RBA will lift its 4.35% cash rate at its meeting next week, and little prospect of a move in September. However, a move in November is priced around 50-50 to account for the risk that third quarter inflation figures could be high when they are released in late October.
The RBA has already hiked three times this year, and that is starting to take a heavy toll on the housing market, with prices falling 0.7% nationally in July.
RBA Governor Michele Bullock last week emphasised that housing had weakened more than expected, adding to speculation it would not tighten further.
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