Comments
The Australian and New Zealand dollars inched higher on Tuesday after President Donald Trump questioned the need for higher interest rates in the United States, undermining the US currency.
The Aussie proved resilient to turmoil in politics at home, where Prime Minster Malcolm Turnbull survived a leadership vote with a perilously narrow margin.
Markets tend to pay little attention to Australian politics, viewing the two major parties as centrist with similar economic policies overall. In particular, both are committed to a return to budget surpluses.
There is also no threat to the independence of the Reserve Bank of Australia (RBA), which on Tuesday again reaffirmed the outlook for stable policy.
The calm mood was clear in the bond market, where yields on Australian 10-year bonds were steady after touching eight-month lows overnight.
Still, another bout of political uncertainty, and possibly an early election, could dampen consumer and business sentiment and thus spending.
The bigger impact on the Aussie came when Trump said he was ”not thrilled” with the Federal Reserve for raising interest rates and said the US central bank should do more to help him to boost the economy.
The comments pushed down Treasury yields and unsettled investors who are very long of US dollars.
“Speculative positions are at the highest since 2017,” said Tai Hui, global market strategist at JPMorgan Asset Management.
“While it may be premature to call this the end of the USD rally, we still think the long term outlook for the USD is for further weakening,” he added.
“Fundamentally, the US economy is running a sizeable current account deficit, which needs the USD to weaken to rebalance.”
The Aussie got a lift to $0.7350, from a low of $0.7296 on Monday and a recent 18-month trough around $0.7203.
The New Zealand dollar inched up to $0.6652, and away from the recent two-and-a-half year low of $0.6545. Analysts noted the market was very short of the kiwi and vulnerable to being squeezed out of those positions.
“(There's) risk of this three-day old rebound extending towards $0.6690 during the days ahead,” said Imre Speizer, strategist at Westpac Bank, in a research note.
The kiwi would first face the risk of an auction for dairy, New Zealand's main goods export, with futures markets suggesting prices would be flat.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.