Australia, NZ dollars on defensive as bond yields keep sliding

SYDNEY: The Australian and New Zealand dollars remained on the defensive on Monday as concerns about a global credit crunch weighed on commodities, while bond yields slid as markets scaled back expectations on official interest rates.

The Aussie was holding at $0.6647, having shed almost 0.9% last week as bank stress hurt risk appetites.

Repeated failures to breach the 200-day moving average of $0.6757 have put the focus on support around $0.6625. The kiwi dollar idled at $0.6200, after losing 1% last week. Resistance lies around $0.6295, with support at $0.6168.

“(The) risk is that the situation morphs into something more sinister, meaning a full-blown credit crunch, which would see AUD and NZD materially weaker,” warned Ray Attrill, head of FX strategy at NAB as he trimmed forecasts for both currencies.

“Beyond this, we are concerned that global growth downgrades for 2024, even if still putting growth a bit above 2023 levels – could see setbacks on the road to still-higher AUD and NZD levels.”

Attrill said he still expected the Aussie to nudge above $0.7000 in the second half of the year, but struggling to reach $0.7500, while the kiwi should top $0.6300, but find a ceiling at $0.6600.

Local bonds have fared far better as markets have priced out almost any chance of further rate hikes from the Reserve Bank of Australia (RBA), and even forecast a chance of a cut later in the year.

That outlook could change should data on retail sales and monthly inflation due this week prove stronger than expected.

Australia, NZ dollars wait in the wings for Fed as banking fears ease

Forecasts are for a modest rise of 0.4% in retail sales for February, while consumer price inflation is seen slowing to an annual 7.1% from 7.4% in January.

Yields on three-year bonds slid to near the lowest since last August at 2.749%, a drop of almost 85 basis points so far this month.

Ten-year yields were at eight-month lows of 3.158% and well under the cash rate of 3.60%.

Markets are still priced for at least one more hike in the 4.75% cash rate from the Reserve Bank of New Zealand (RBNZ), but now doubt its will reach its projected target of 5.5%.

As a result, two-year swap rates have dived 59 basis points this month to 4.798%.