The Australian and New Zealand dollars were stalemated against a broadly firmer US dollar on Friday, but advanced on the yen and euro as an upbeat survey on Chinese industry augured well for exports to the world's second largest economy.
The Australian and New Zealand dollars were stalemated against a broadly firmer US dollar on Friday, but advanced on the yen and euro as an upbeat survey on Chinese industry augured well for exports to the world’s second largest economy. China’s official Purchasing Managers’ Index (PMI) rose to 51.8 in March, from the previous month’s 51.6, as the industrial sector benefited from higher prices and a recovery in demand fuelled by a construction boom.
The Australian dollar was restrained on its U.S. counterpart at $0.7642, having spent the whole week bounding around in a $0.7587 to $0.7679 range. The New Zealand dollar was pinned near the floor of the week’s range at $0.6991, a level that marks major chart support. The Aussie fared far better on the euro, which fell back to A$1.3965 and away from a recent 11-week peak of $1.4309. The single currency took a battering after data showed German inflation had slowed far more than expected in March, countering speculation the European Central Bank might soon move to unwind some of its aggressive policy stimulus.
The Aussie also extended its rally on the yen, climbing to 85.64 from a three-month trough of 83.76 touched early in the week when safe havens had been in vogue. In domestic news, Australia’s banking watchdog on Friday launched a new salvo in its battle against speculative home lending and rising house prices, slapping limits on interest only loans in particular.
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If successful, the move could lessen pressure for an early rise in interest rates from the Reserve Bank of Australia (RBA). The bank has become increasingly concerned that the run up in borrowing at a time when household debt was already at record highs could weigh on consumer spending power and risk a damaging pullback in prices.
That was a major reason the RBA all but ruled out further cuts in rates, which are already at record lows of 1.5 percent. “It reinforces our “no change” call for 2017 and 2018 on rates,” said Robert Rennie, chief currency strategist at Westpac. He is also looking for two more rate hikes from the U.S. Federal Reserve this year and a pullback in global commodity prices later in 2017 as supply outpaces demand.
“It adds confidence to the A$ being capped by $0.77/0.7750 and that a slide to $0.74 beckons later this year,” he said. Australian government bond futures eased in line with U.S. Treasuries, with the three-year bond contract off 2 ticks at 98.040. The 10-year contract was also down 2 ticks at 97.2550.
New Zealand government bonds tracked the global trend with yields up around 2 basis points across the curve.