The Australian and New Zealand dollars were nursing hefty losses on Monday as weak Chinese trade numbers only added to the selling pressure unleashed by a surprisingly robust US employment report. The Australian dollar was pinned at $0.8298, having sunk nearly 1 percent on Friday to its lowest in more than four years. It dropped as far as $0.8288 with support found at the June 2010 low of $0.8269.
The New Zealand dollar skidded to a two-and-a-half year low at $0.7644, breaking support at $0.7660. The latest blow came when China reported a sharp drop in imports for November, while exports slowed. The Aussie is often used as a liquid proxy for wagers on China given the country is Australia's biggest export market. Softness in China is one reason investors have recently returned to pricing in a rate cut in Australia. In contrast, Friday's upbeat US payrolls report boosted expectations the Federal Reserve will raise interest rates by mid-2015. As a result, the spread between Australian and US 2-year bond yields narrowed to 171 basis points, the smallest since 2009, from 222 bps in September. The spread on 10-year bonds shrunk to 75.5 basis points, from 106 bps last month.
"It's completely justified and (both) will continue to go lower as policy rates normalise," said Martin Whetton, a senior rate strategist at ANZ Bank. Australian government bond futures were just off 2-year peaks, with the three-year bond contract down 1 tick at 97.680. The 10-year contract was steady at 96.935.
The kiwi was in turn pressured by expectations for a downward revision to the forecast payout to dairy farmers from Fonterra this week, while the country's central bank is also tipped to take dovish tone at its policy meeting. "The market's response is likely to be to sell the NZD on the day," said Westpac senior strategist Imre Speizer. Markets were unmoved by data showing manufacturing sales volumes rose modestly in the third quarter, providing a positive contribution to GDP data due next week. Preliminary forecasts are for quarterly growth of 0.8 percent. New Zealand government bonds eased, sending yields up to 4 basis points higher at the long end of the curve.