Australia, NZ dollars weaken for second day on low risk appetite

SYDNEY: The Australian and New Zealand dollars weakened on Tuesday after cautious investors cut down on risk amid concerns over rising COVID-19 cases and as the greenback strengthened on growing bets of higher US interest rates.

The Aussie dollar weakened 0.1% to $0.7557, falling for a second straight session. The unit dropped as deep as $0.7552 earlier in the day, a level not seen since June 23.

The New Zealand dollar was off 0.1% at $0.7032.

"The Aussie fell sharply overnight ... after Boston Federal Reserve president Eric Rosengren raised the spectre of higher interest rates to manage the rapid gains seen in the US housing market," Steven Dooley, currency strategist for Western Union Business Solutions said.

Rosengren told the Financial Times the United States cannot afford a "boom and bust" cycle in the housing market that would threaten financial stability.

"While Fed officials have been recently discussing tightening policy, the focus has been on controlling inflation, rather than managing asset prices. Rosengren's comments saw the conversation open on a new front causing the US dollar to climb," Dooley noted.

The dollar index, which tracks the greenback against a basket of six major currencies, was at 91.949, not from a two-month high of 92.408 seen earlier this month.

New COVID-19 outbreaks in Australia and South East Asia have hurt risk appetite, proving another headwind for the antipodean currencies.

Worries that the Delta strain of the coronavirus could touch off major outbreaks have forced lockdowns in three major Australian cities and some form of curbs in several others - affecting about 80% of the country's population.

Across the Tasman Sea, the New Zealand government, which halted its "travel bubble" with Australia on the weekend, on Tuesday said it will resume quarantine-free travel with parts of the country.

The broader risk aversion has spurred demand for safe-haven bonds. New Zealand government bonds rose, sending yields about 4-5 basis points lower at the long-end of the curve.

Australian government bond futures gained as well, with the three-year bond contract up 2 ticks at 99.54. The 10-year contract rose 6 ticks to 98.4650.

Some economists believe the Australian central bank will likely reiterate its dovish message when it meets next week.

The Reserve Bank of Australia has flagged it will announce on July 6 its decisions on whether to extend its three-year yield target beyond the April-2024 bond and future plans for its ongoing bond-buying programme.