Aussie, kiwi stay defensive

22 Nov, 2016

The Australian and New Zealand dollars stayed on the defensive on Monday as rising Treasury yields and the prospect of a December rate hike in the United States boosted the greenback at the expense of currencies across the Asian region. The Australian dollar was pinned at $0.7330, having touched a five-month trough around $0.7319. Chart support now lies at $0.7305 and $0.7286 which mark previous lows from June.
The kiwi had also steadied for the moment at $0.7014, having hit its lowest since July at $0.7019. Both currencies have shed around four US cents since the election win of Republican Donald Trump led to a radical reappraisal of the outlook for US inflation and interest rates that sent Treasury yields flying.
The bond rout has lifted yields on US 10-year paper a massive 48 basis points in less than two weeks, while Australian yields have climbed 40 basis points. The jump in US yields threatens to suck capital out of emerging markets and has hit currencies in Asia especially hard. The Aussie is often sold as a liquid proxy for such risk.
"It will be very difficult for AUD/USD to benefit sustainably from mostly solid domestic fundamentals and still elevated commodity prices while Asian markets are in turmoil," said Sean Callow, a senior currency strategist at Westpac. New Zealand government bonds were a shade lower in price. Australian government bond futures paused after a run of heavy losses, with the three-year bond contract up a tick at 98.150. The 10-year contract added 2.5 ticks to 97.3400, while cash yields earlier touched their highest since January at 2.36 percent.

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