The Australian dollar extended losses to touch a 3-week trough on Friday, hurt by falling metals and iron ore prices, while its New Zealand cousin drifted further away from the 1-1/2 month peak touched earlier this week. The Australian dollar went as low as $0.7908, a level not seen since August 31. For the week, it has fallen 1 percent and was on track for its worst weekly showing since early July.
The losses were led by a 1.2 percent drop on Thursday, the Aussie's biggest one-day decline in 4-1/2 months, following comments from the country's central bank governor that were less hawkish than some had anticipated. Investors were pricing in a rate hike in Australia as early as mid-2018 after some major central banks moved to dial down stimulus in recent weeks.
But Governor Philip Lowe wrongfooted hawks by saying the Reserve Bank of Australia (RBA) does not have to follow a global rush to raise interest rates as policymakers was watching heavily indebted households carefully. The New Zealand dollar was down 0.2 percent to $0.7289 on jitters ahead of a hotly-contested general election on Saturday. The kiwi was flat for the week, upsetting two straight weekly gains.
A win for the ruling National Party would cheer investors who favour continuity and support National's vow to keep the small trading economy open to foreign investment. New Zealand government bonds rose, sending yields about 3 basis points lower across the curve. Australian government bond futures edged higher, with the three-year bond contract up 2 ticks at 97.810. The 10-year contract climbed 4 ticks to 97.1800. Falling prices of commodities, in particular iron ore - Australia's top export earner - and a downgrade of China's credit rating by S&P did not help either.
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