The Australian and New Zealand dollars got some reprieve on Monday after Chinese exports data beat forecasts, while lower-than-expected US jobs data weighed on the US dollar. The Australian dollar popped back above 86 cents to $0.8643, from a four-year trough of $0.8540 touched Friday. The Aussie tumbled nearly 2 percent last week, its largest loss in two-months, amid a sharp decline in commodity prices with iron ore slipping to $75.50 a tonne.
Iron ore is Australia's top export earner and its price has nearly halved so far this year. The Aussie bounce started late on Friday after US jobs data fell short of expectations and weighed on the US currency. Also helping underpin commodity currencies was news out of China on Saturday showing export growth did not slow as much as feared. China is Australia's biggest export market. The New Zealand dollar was sitting firmer at $0.7768 having been lifted by the softer than expected US payrolls data, which saw the greenback retreat on profit taking.
The positive data out of China over the weekend also helped to sustain the kiwi's gains, although the outlook for the currency, which hit a 2 1/2-year low of $0.7660 on Friday, is still seen as largely negative. Still, the Aussie remains vulnerable as the US economy shows signs it is outperforming Europe and Japan and highlighting the diverging policy outlooks between the Federal Reserve and the European Central Bank and Bank of Japan.
"The medium term trend is down, particularly with lower commodity prices and a narrowing Australia-US two-year swap spread," said Joseph Capurso, a strategist at Commonwealth Bank of Australia. Economists and markets expect interest rates in Australia to remain on hold at a record low of 2.5 percent, with the next move to be up but not until far into 2015.
Data at home showed a fall of 0.7 percent in housing finance versus forecasts of a 1 percent slide. The next flashpoint is China's inflation data. CBA's Capurso said a soft reading would ignite expectations the People's Bank of China will implement further easing measures and could lift the Aussie dollar on the short-term. "The US dollar will need to broadly fall from favour if the NZ dollar is to maintain any sort of rebound," said Bank of New Zealand senior strategist Kimberly Martin in a note.
Near-term support for the kiwi is seen at $0.7700 and below that the year low of $0.7660, with $0.7800 the first hurdle higher. The local calendar has mostly second tier data this week, while dairy giant Fonterra has its annual meeting and the Reserve Bank of New Zealand (RBNZ) will issue its six-monthly fiscal responsibility report.
The RBNZ will update on the restrictions on banks' low deposit lending imposed last year, with expectations it will announce it will phase them out through next year. New Zealand government bonds were slightly firmer sending yields 4 basis points lower along the curve. Australian government bond futures leapt, with the three-year bond contract up 4 ticks at 97.430. The 10-year contract added 7.5 ticks to 96.430 in a bullish flattening of the curve.
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