SYDNEY: The Australian and New Zealand dollars steadied on Monday after last week’s sell-off driven by fears of a US economic downturn slugged risk assets, while a rally in bonds lost momentum.
The Aussie bounced 0.2% at $0.6685, having slid 1.4% last week as data showed the US economy added fewer jobs than expected in August and previous gains were revised lower.
Support is now at a major chart level of $0.6640, while resistance is around 67 cents.
Chinese data on Monday showed inflation remained tepid in the world’s second-largest economy, with gains in consumer prices missing forecasts last month and producer prices remaining stuck in contraction.
That added to concerns about weak domestic demand, with prices for iron ore, Australia’s biggest export item, falling another 1% to $90.80 a ton on Monday, the lowest in a year.
That would be a weight on the Aussie, although the correlation between the two has faded somewhat recently.
The kiwi was 0.1% higher at $0.6179, after losing 1.2% last week to as far as $0.6156. Resistance lies at last week’s top of $0.6298, with support around $0.6168 and $0.6129.
The mixed US non-farm payrolls report failed to provide much clarity on the size of a highly anticipated interest rate cut from the Federal Reserve this month, with futures implying the chance of a half-point easing at 30% after less dovish commentary from top officials.
Local bonds rallied early in Asian trading before running into selling pressures.
The Australian three-year bond yield touched a two-week low of 3.489% before rebounding to 3.544%, up 2 basis points on the day.
Australia, NZ dollars long for clarity on US rates, recession risk
Ten-year yield was last up 5 bps to 3.949%, some 20 bps above the benchmark Treasury yield.
“Rate differentials have remained supportive for higher AUD levels, but heightened concerns over the global growth outlook, US and China in particular, are now dominating the price action,” said Rodrigo Catril, senior FX strategist at the National Australia Bank.
The Commonwealth Bank of Australia sees the Aussie trading in a range around $0.6650 this week, with the US consumer price index report due on Wednesday having the potential to send it lower, as far as $0.6571.
This week is thin on economic releases and events in Australia and New Zealand.
Reserve Bank of Australia Assistant Governor Sarah Hunter will give a speech at an event on Wednesday, and there are some second-tier data from New Zealand on migration and food prices.
Swaps are implying a 70% probability of a rate cut from the RBA in December, whereas markets are pricing in a total easing of 110 bps from the Fed this year.
American Dollar Exchange Rate