Australia, NZ dollars bounce from lows, ponder RBA risks By Wayne Cole

SYDNEY: The Australian and New Zealand dollars were catching their breath on Friday after recovering from a sickening slide the previous session, although both were nursing losses for the week.

The Aussie held at $0.7667, having dived as deep as $0.7592 overnight before rebounding as the market's fickle mood swung back toward risk assets.

The bounce took the currency back above chart support around $0.7645/50 but left it down 0.6% on the week so far and well short of the week's $0.7764 peak.

The kiwi dollar had an equally wild ride to stand at $0.7165 after sliding as far as $0.7106 at one stage overnight. Again it was well off the week's top of $0.7246, but did avoid a damaging breach of support at $0.7097.

The Aussie was undermined in part by a sharp fall in prices for iron ore, Australia's single biggest export earner, as Beijing talked about restraining steel production this year.

It faces home-grown risks next week when the Reserve Bank of Australia (RBA) holds its first policy meeting of the year with most analysts tipping it will recommit to keeping rates at record lows for three more years.

Most also expect the central bank to extend its A$100 billion ($76.75 billion) bond buying program, though the actual announcement might not come until March or April.

"Extending their bond buying program is the path of least regret," said CBA senior economist Gareth Aird.

"It will ensure that their policy decisions do not put any undesired upward pressure on the Australian dollar," he added. "And it will assist both Federal and State governments in financing their large fiscal expansions."

The RBA has plenty of opportunity to outline its thinking with Governor Philip Lowe giving a speech on Wednesday and appearing before parliament on Friday, while the bank's quarterly statement on policy is also due on Friday.

Three-year bond yields at 0.12% remain pinned near the RBA's target of 0.10%, while commercial bank balances at the central bank have ballooned to over A$139 billion as it keeps the system flush with cash.

Australian 10-year bond yields edged up to 1.09% having tracked gyrations in US Treasuries all week. That left yields 3 basis points above the US, having spent all of January in a range of -7 to +7 basis points.