The Australian and New Zealand dollars kept just below recent peaks on Monday with the market reluctant to take large bets ahead of data and a central bank rate review later in the week. The Australian dollar was a touch softer at $0.7223, having touched $0.7386 on Friday, a level not seen since August.
It has rebounded more than 4 percent so far this quarter, in part due to carry trades where global investors can borrow at low rates in euros and yen to buy higher-yielding assets such as the Aussie or kiwi dollars. The premium offered by Australian two-year government bonds over euro debt stood at a mouth-watering 240 basis points and 212 basis points against yen bonds.
The Aussie held near 3-1/2-month highs against the yen, while the euro hovered at A$1.4814, having tumbled 17 cents since August. This week, the focus will be on Australia's job report, a bevy of Chinese data and the Reserve Bank of New Zealand's (RBNZ) rate review. The New Zealand dollar edged down to $0.6719, from a one-month peak of $0.6787 set on Friday. Resistance was found around the $0.6800 level. Investors are waiting to see whether the RBNZ will cut interest rates on Thursday. The majority of economists polled by Reuters expect rates will be trimmed a quarter of a percentage point to 2.50 percent, but the market was less sure, pricing in about a 50 percent probability.
"We expect Governor Wheeler to lower the cash rate by a further 25 basis points, though acknowledge the decision is finely balanced," said Stephen Walters, chief economist at J.P. Morgan. He cited ongoing weakness in dairy prices and persistent strength in the exchange rate as the main arguments for further policy support. New Zealand government bonds were mostly flat across the curve. Australian government bond futures hovered near multi-month lows. The three-year bond contract was steady at 97.820, having touched its lowest since May at 97.770. The 10-year contract added half a tick at 97.0250, while the 20-year contract was also up half a tick at 96.5150.
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