The Australian dollar regained some ground on Friday, while the New Zealand dollar sagged near an 11-month trough, with both currencies on track for weekly losses. The Australian dollar edged up to $0.7380 but was still within reach of a four-month trough of $0.7329 touched on Tuesday. It was on track for its seventh weekly loss in eight with a drop of 0.5 percent. Much of the damage came after disappointing building approvals and retail sales numbers gave investors their rationale to cut Aussie long positions.
It was also undermined by retreating iron ore prices which slipped to $60.38 a tonne on Thursday, not far above a six-month low, according to Metal Bulletin. The Aussie is sensitive to iron ore, Australia’s top export earner. Support was found around $0.7340 with resistance near $0.7395.
“We remain sceptical of any aggressive upside from here unless the wheels fall off the U.S. dollar and commodities make a solid rebound,” said Matt Simpson, a senior market analyst at Thinkmarkets.
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Also capping a rise was diminishing yield appeal. The spread between Australian and U.S. two-year bonds shrunk to 33 basis points, the lowest in 16 years. Across the Tasman Sea, the New Zealand dollar edged down to $0.6837, close to an 11-month low of $0.6829 on Thursday. It skidded 1.3 percent in the last session after the Reserve Bank of New Zealand (RBNZ) wrong-footed kiwi bulls by keeping a neutral bias at its last policy review where it held interest rates steady at a record low 1.75 percent.
Markets had expected a more hawkish tone. The kiwi was poised for a weekly loss of 1.2 percent. Analysts said the currency could trade within a fairly tight range for some time with the RBNZ’s neutral stance acting as a “top side cap” on the kiwi.
“With the fiscal position strong, the data pulse generally good, NZ’s commodity basket generally outperforming…it is hard to paint much of a downside case either, especially on a trade-weighted index basis,” ANZ senior economist Philip Borkin said in a research note.
New Zealand government bonds gained, sending yields 4.5 basis points lower along the curve. Australian government bond futures rose, with the three-year bond contract up 2 ticks at 98.150. The 10-year contract also gained 2 ticks to 97.3350, while the 20-year contract added 1.5 ticks to 96.7550.