Aussie, kiwi extend rally

The Australian and New Zealand dollars extended a week-long rally on Tuesday as optimism for progress on Sino-US trade talks and the Brexit standoff squeeze short positions and pushed bond yields higher. The Aussie dollar reached a five-week top of $0.6883, though bulls need to break major resistance at the September peak of $0.6895 to build on the run. The kiwi dollar was in much the same position having climbed to the highest in more than five weeks at $0.6435 and nearing the September top of $0.6450.

All of which has seen safe-haven bonds cede some of the year's huge gains. Yields on Australian 10-year paper were up at 1.18%, after being as low as 0.87% just eight sessions ago. Three-year bond futures eased 1.5 ticks to 99.210, and further away from the recent record peak of 99.420.

Yields on New Zealand 10-year bonds rose to 1.35%, a long way from the recent trough of 1.01%. "Positive mood music on US-China trade developments is keeping the risk fires burning, the S&P 500 closing back above 3,000 for the first time since September 19th and bond yields higher across the globe," said Ray Attrill, head of FX strategy at NAB. China and the United States have achieved some progress in their trade talks, Vice Foreign Minister Le Yucheng said on Tuesday, adding that as long as both sides respected each other, no problem could not be resolved.

US President Donald Trump also sounded upbeat on a China deal on Monday, while White House adviser Larry Kudlow said tariffs on Chinese goods scheduled for December could be withdrawn if talks go well. On Brexit, investors are wagering Prime Minister Boris Johnson's repeated failures to get his deal through Parliament mean there is less of a risk of a hard exit. There were no economic data out, but dairy exporter Fonterra lifted the 2019-2020 guidance range for the price it pays farmers for milk, saying it has managed to achieve firm prices so far this year. The company estimated the increase would add NZ$450 million to New Zealand's economy.