Australia, NZ dollars take breather after volatile week

SYDNEY: The Australian and New Zealand dollars were little changed in thin trading on Monday, after a volatile week that ended with both currencies benefiting from a weaker dollar on Friday following disappointing US non-farm payrolls data.

The Aussie was trading 0.4% lower at $0.7739 against the greenback at midday in Asia, having gained 1.04% on Friday, which partly recovered falls that tested support at $0.7646 the previous day.

Before the moves sparked by the US jobs figures, the Aussie had been trading within the $0.7677/$0.7891 band since May.

The New Zealand dollar was 0.01% higher at $0.7213 in holiday-thinned trade. After a volatile week, the kiwi is now also in the middle of its range of $0.7116 to $0.7316 since mid-April.

S&P Global Ratings upgraded its outlook on Australia's coveted "AAA" sovereign rating to 'stable' from 'negative' citing the country's "swift economic recovery" from the COVID-19 pandemic driven recession.

The Australian dollar largely ignored the positive news but "can build on Friday's gains against a heavy USD this week ... because its fundamental drivers are elevated," Commonwealth Bank of Australia analysts said in a note.

For weeks analysts have noted the Australian dollar is not fully reflecting record-high commodity prices, as investors instead have looked at monetary policy expectations from the Reserve Bank of Australia.

"Friday's sharp rebound means the commodity price-driven/global rebound bull case lives to fight another day," said National Australia Bank foreign exchange strategists.

They expect the Aussie to trade with an 80 cent to 85 cent handle within the next six to 12 months, "unless faith in full economic re-opening in a post-vaccine world in H2 2020 proves misplaced".

Australian 10-year yields fell 6.7 basis points to 1.57%, in line with Friday's sharp fall in US Treasuries, which are also trading near their May lows at 1.57%.

Futures contract for the same maturity also moved 6.5 ticks higher 98.4, implying a 1.56% yield, while the three-year bond contract was one-and-a-half ticks higher at 99.80, implying a 0.20% yield.