SYDNEY: The Australian and New Zealand dollars broke to fresh highs on Friday as their US counterpart continued to spiral lower in what was increasingly looking like the start of a long-term bear run for the currency. The Aussie firmed to $0.7209 and reached a 17-month peak of $0.7215 having finally cracked a former top and stiff resistance at $0.7206.
That left it up 1.4% on the week and 4.4% for July as a whole, with the next big target at $0.7296 top from early 2019. The kiwi dollar stood at $0.6692 after reaching a seven-month high of $0.6706. It was 0.8% higher for the week and 3.7% on the month. That put it within striking distance of $0.6755, a major peak from December 2019.
NAB lifted its December forecast for the Aussie by two cents to $0.7400, and now saw $0.8000 by mid-2022 up from $0.7500 previously. It also raised its kiwi forecasts to $0.6800 for the end of the year and $0.7300 by mid-2022.
Australian bonds were still basking in the glow from this week's A$15 billion sale of 30-year notes, which drew heavy demand from offshore investors. A record fall in domestic inflation and a fresh drop in US yields also underpinned sentiment.
The 10-year futures contract added 2 ticks to 99.1450, having hit its highest since late May. The US dollar's latest leg lower followed a tweet from US President Donald Trump suggesting the November election should be delayed, a radical idea that was immediately rejected by both Democrats and Republicans.
Analysts at NAB said the US dollar looked to have entered a major downtrend that could last at least a couple of years given the failure to contain the coronavirus in the country and the need for yet more stimulus, both fiscal and monetary.
In contrast, the Aussie was benefiting from China's economic recovery with its reliance on infrastructure heavy commodity intensive capital investment. A survey out Friday showed China's factory activity expanded in July for the fifth month in a row, beating analysts' expectations.
"AUD fair value has been driven up by a combination of the improvement in risk sentiment and key commodity price drivers," said Ray Attrill, head of FX strategy. "The widening in real bond yield differentials, a key driver of our AUD medium-term model, is also seen providing ongoing tailwinds."