The Australian and New Zealand dollars fell to fresh multi-year lows on Monday, but were quick to recover in an absence of follow-through selling as investors waited for the next chapter in the Greek debt saga.
The Aussie initially slumped to a six-year low of $0.7452 , while its New Zealand peer touched a five-year trough of $0.6645 after Greeks overwhelmingly rejected conditions of a rescue package on Sunday.
The ‘No’ vote has thrown Greece’s future in the euro zone into further doubt, creating more uncertainty for investors and delivering a blow to global confidence. European leaders called a summit for Tuesday to discuss their next move.
Yet, both Antipodean currencies have regained most of their losses to stand at $0.7489 and $0.6680 by midday.
“It’s not clear what has been determined by the referendum, if anything. While the magnitude of the no vote perhaps caught a few traders off guard, we will need to wait for the European leaders and the European Central Bank’s response to figure out the next course of action,” said Stephen Innes, senior trader at FX/CFD firm OANDA Australia and Asia Pacific.
Even the euro, which was hit hard first thing this morning, regained some of its composure. It fetched A$1.4746, having earlier slid to A$1.4618. Against the kiwi, it bought NZ$1.6524, up from NZ$1.6437.
As a result, demand for the safe-haven yen has quickly dried up, allowing both Antipodean currencies to bounce off multi-month lows.
The Aussie last stood at 91.79 yen, off a three-month low of 90.79, while the kiwi was at 81.87 yen , up from a 20-month trough of 80.99.
The flight-to-safety flow is more evident in the bond market, which drove New Zealand yields as much as 6 basis points lower at the long end of the curve.
Australian government bond futures rallied with the three-year contract up 11 ticks at 98.030. The 10-year contract put on 15 ticks to 97.0350.
Traders said the next test for the Aussie is the Reserve Bank of Australia’s (RBA) policy review on Tuesday. While the consensus is for no rate change, many will be on the look out for the central bank’s latest thinking on the currency.
“We expect the RBA to repeat that further depreciation is both likely and necessary. That is likely to keep a lid on the Aussie dollar,” said Sue Trinh, senior currency strategist at RBC in Hong Kong.
“Certainly if they omit that phrase, the converse is also true as well.”
For the kiwi, a closely followed business sentiment survey on Tuesday could add to expectations of significant policy easing by the Reserve Bank of New Zealand.