Australian, New Zealand dollars get a hand up from China data

The Australian and New Zealand dollars firmed on Monday after surprisingly upbeat Chinese data put the squeeze on short positions, though domestic economic news was more mixed.

The Aussie edged up 0.2% to $0.6674 and away from a six-week trough of $0.6754 struck on Friday. It now faces resistance at $0.6780 and $0.6805.

The kiwi dollar inched ahead to $0.6445, some distance from last week's low of $0.6323. A major chart barrier now looms at $0.6466.

The gains owed much to surveys of China's factory activity which beat forecasts with one showing the quickest pace of expansion in almost three years in November.

Domestically, Australian data showed cuts in interest rates were working to reignite house prices, which enjoyed their biggest monthly rise in 16 years in November.

That had yet to feed through into construction, however, with approvals to build new homes taking a dive in October while job ads suffered another drop in November.

All of which left investors still looking for another rate cut from the Reserve Bank of Australia (RBA) next year, though the probability of a move at its December policy meeting on Tuesday was put at just 8%.

A quarter-point easing to 0.5% is almost fully priced in by April, with a real chance of reaching 0.25% by year end.

In contrast markets have greatly scaled back expectations for more easing from the Federal Reserve, leaving Australian two-year bond yields a hefty 92 basis points below those for Treasuries.

"The spread currently suggests all the risk to AUD is to the downside, and AUD/USD will re-test the lows below $0.6700 where it has tried to close under on no less than five separate occasions since August," said Richard Grace, chief currency strategist at CBA.

Australian government bond futures did pare a little of their recent gains on Monday, with the three-year bond contract off 3 ticks at 99.320. The 10-year contract dipped 4 ticks to 98.9200.

Over in New Zealand, economic data extended their recent better run with the terms of trade rising 1.9% in the September quarter, well above forecasts of 0.7%.

"Recent price action suggests the terms of trade could head to record highs in the near term," said Westpac senior economist Michael Gordon.