The Australian and New Zealand dollars drifted away from three-week peaks as the greenback strengthened on signs of potential inflationary pressure in US December jobs reports. The Australian dollar held at $0.7322 versus a high of $0.7355 touched on Friday. It is up 1.7 percent in January so far, starting the new year on a strong footing after three straight monthly declines.
The New Zealand dollar inched 0.2 percent higher to $0.7325. A dearth of domestic data has seen the kiwi move at the whim of the US dollar in recent days. The Reserve Bank of New Zealand holds its next policy meeting on February 9 and is considered certain to keep its official cash rate at 1.75 percent, with the market wagering it will remain there for much of the coming year.
New Zealand government bonds eased, sending yields up about 5 basis points across the curve. Australian government bond futures slipped too, with the three-year bond contract down 5 ticks at 97.970. The 10-year contract was off 6.5 ticks at 97.215. Analysts were circumspect about further gains, despite robust data from China, Australia's No 1 trading partner.
"Encouraging Chinese and US economic activity bode well for base metal prices and the AUD. But broad-based USD strength will curtail AUD/USD upside," said Elias Haddad, senior currency strategist at Commonwealth Bank. The US dollar is hovering near 14-year highs against a basket of currencies as expectations of faster interest rates hikes by the Federal Reserve have sent Treasury yields soaring.
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