The Australian and New Zealand dollars were holding hefty losses on Tuesday against their US counterpart and yen as a global selloff in equities sparked a rush to safety, pulling down bond yields. The Australian dollar held at $0.7198, having dropped a full US cent on Monday when Chinese shares tumbled 7 percent. It fell as far as $0.7156 and pulled closer to recent lows under 71 cents. A break could see a retracement to $0.7016 touched in November.
For Stuart McPhee, a senior technical analyst at OANDA Australia and Asia Pacific, the first hurdle for Aussie bears was a sustained break under major support around 72 cents.
"The question is how much it can hold up as there seems to be significant bearish sentiment surrounding the Aussie for 2016 with many expecting further falls throughout the year," McPhee said. All eyes were on China as investors anxiously waited to see if Beijing can head off the latest selling stampede and whether it will further weaken the yuan to help calm markets.
The Aussie stood near three-month lows at 85.62 yen and could see a retracement all the way to 81.85 cents touched in September. The New Zealand dollar was also bruised at $0.6745 after an overnight fall of 1.1 percent. Wellington-based BNZ Currency Strategist Jason Wong said the kiwi was one of the hardest hit. Following a rally in US Treasuries, New Zealand and Australian government bond prices climbed. Yields on New Zealand debt fell between 5.5 and 7 basis points across the curve. Australian government bond futures climbed to two-month peaks, with the three-year bond contract up 5 ticks at 98.050. The 10-year contract added 6 ticks to 97.2400, while the 20-year contract was 5 ticks higher at 96.7450.