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Australia, NZ dlrs edge up on commodity, yield attraction

Published 28/11/2016, 01:19 pm
Updated 28/11/2016, 01:20 pm
Australia, NZ dlrs edge up on commodity, yield attraction

Australia, NZ dlrs edge up on commodity, yield attraction

By Cecile Lefort and Charlotte Greenfield

SYDNEY/WELLINGTON, Nov 28 (Reuters) - The Australian and New Zealand dollars firmed against their U.S. counterpart on Monday, as rising commodity prices and relatively high bond yields underpinned sentiment for carry trades.

The Australian dollar AUD=D4 edged up in light trading to $0.7456, from a low of $0.7400 on Friday, and away from a five-month trough of $0.7311 touched last week.

Initial resistance was found at $0.7489, the 38.2 percent retracement of the $0.7778-$0.7311 decline. Strong support was found at $0.7365-70 and a break would signal a test to $0.7286.

Helping the Aussie were buoyant commodity prices, particularly iron ore, Australia's top export earner. Iron ore futures traded in China extended last week's hefty gains with a 3.5 percent rise. 0#DCIO:

Analysts, however, warned such strength might not be sustained.

"Ultimately, we expect the prices of Australia's key commodities to fall because demand conditions should ease in China early next year," said Joseph Capurso, a strategist at Commonwealth Bank of Australia.

Also helping was carry demand, where investors borrow at low rates in yen to buy higher yielding assets such as the Aussie and the New Zealand dollar.

The Aussie fell to 83.31 yen AUDJPY=R , from 83.94 in early trade, but that was still near a seven-month peak touched on Friday. It rose 3.2 percent last week.

The kiwi slipped to 79.09 yen NZDJPY=R , from 79.48, having touched an 11-month peak of 79.76 on Friday.

Against its U.S. peer, the New Zealand dollar NZD=D4 bounced to $0.7057 having been as low as $0.6970 last week.

"The stalled US dollar allows [New Zealand's] strong economic fundamentals to come to the fore," Imre Speizer, market strategist at Westpac, said in a research note, adding that the currency was targeting $0.7070.

Domestic indicators have been running hot recently with consumer spending, employment and migration all beating forecasts.

New Zealand government bonds 0#NZTSY= gained, sending yields 6 basis points lower at the long end of the curve.

Australian government bond futures bounced from multi-month lows, with the three-year bond contract YTTc1 up 4 ticks at 98.110. The 10-year contract YTCc1 rose 6.5 ticks to 97.3400, while the 20-year contract YXXc1 added 6 ticks to 96.7350.

Australian 10-year cash bond yields AU10YT=RR dipped to 2.76 percent, from 2.83 percent last week which were the highest since early January.

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