Australia, NZ dollars pinned near multi-month lows as US yields surge

SYDNEY: The Australian and New Zealand dollars were stuck near multi-month lows on Tuesday as higher Treasury yields bolstered their US counterpart, while local bonds also took a kicking.

The Aussie dollar was struggling at $0.6655, the lowest in six weeks, having tumbled 0.7% overnight.

It has support at the 200-day moving average of $0.6628, while resistance is now around 67 cents.

The kiwi held at $0.6021, the lowest in about two months, after falling 0.7% overnight.

It broke a key support level of $0.6040/50, while major resistance lies at the 200-day moving average of $0.6090.

Treasury yields jumped overnight as bets for aggressive US easing further diminished in the months ahead, although there has not been an obvious catalyst.

Traders only see a total US easing of 40 basis points for the rest of the year, implying less than two quarter-point moves from the Federal Reserve in November and December.

“We do not consider the overnight moves are an omen of future big falls in AUD,” said Joseph Capurso, head of international economics at the Commonwealth Bank of Australia.

“The global economic recovery that supports gains in AUD/USD is still on-track. With no important economic data scheduled for release in Australia or China today, we expect AUD/USD to follow the trend in equity markets.”

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Asian shares opened lower on Tuesday, following Wall Street, as higher yields pressured sky-high valuations of US companies.

Three-year Australian government bond futures fell 6 ticks to 96.15, the lowest since the end of July, while 10-year bond futures slid 10 ticks to 95.625, the lowest since July 24 and also a major support level.

With expectations for Fed easing being pared, traders are only pricing in just a 25% chance of a rate cut from the Reserve Bank of Australia this year, while a first easing in April next year is now less than fully priced in.

Across the Tasman Sea, traders still see a decent risk – about 25% – that the Reserve Bank of New Zealand could deliver a 75 basis point rate cut at their last meeting of the year in November, with a half-point move more than fully priced in.

RBNZ Assistant Governor Karen Silk said on Tuesday the central bank intended to continue with balance sheet reduction during the easing cycle, adding that it is not indicative of the monetary policy stance.