⏳ Final hours! Save up to 60% OFF InvestingProCLAIM SALE

Australian, NZ dollars break higher after bear squeeze

Published 12/12/2019, 01:02 pm
Updated 12/12/2019, 01:07 pm
© Reuters.  Australian, NZ dollars break higher after bear squeeze
AUD/USD
-
NZD/USD
-
AU10YT=RR
-

By Wayne Cole

SYDNEY, Dec 12 (Reuters) - The Australian and New Zealand dollars held hefty gains on Thursday as markets took a steady outlook from the Federal Reserve as a dovish signal, lowering U.S. yields and triggering a vicious squeeze in U.S. dollar long positions.

The Aussie was up at $0.6877 AUD=D3 , having jumped 1% overnight to a one-month peak of $0.6889. That was the sharpest one-day gain since January and snapped stiff chart resistance around $0.6862.

Speculators had amassed large short positions against the Aussie in recent weeks as domestic data remained soft, and many were stopped out by the speed and scale of the rally.

"It is possible AUD/USD lifts to the 200-day moving average of $.6912," said Richard Grace, chief currency strategist at CBA. "But at this stage, with a weak domestic economy, we believe it will find levels above $0.6900 challenging to sustain."

The squeeze spread to yen positions, where the Aussie shot 0.8% higher overnight to hit 74.61 yen AUDJPY= .

Likewise, the kiwi had reached $0.6584 NZD=D3 , after rising 0.6% overnight to a fresh four-month top of $0.6603. The break of resistance at $0.6576 was a bullish turn that also forced speculative short covering.

Both currencies had already been on the rise before Fed Chair Jerome Powell jolted markets by emphasising it would take a significant and persistent acceleration in inflation for the central bank to even consider raising rates. Fed board had earlier indicated rates would likely stay steady for all of 2020 and trimmed projected hikes in 2021 and 2022. Long-term Treasury yields fell in response and markets are still wagering on one more cut for next year FEDWATCH .

Australian yields lagged, narrowing the gap between 10-year yields AU10YT=RR to 64 basis points from 71 basis points a day ago. The three-year bond futures YTTc1 were off 0.5 ticks on Wednesday at 99.275.

The next major hurdle for markets will the UK election where exit polls should appear around 2200 GMT, which is early Friday morning in Australia.

Sterling has been rising steadily on expectations the Conservative government would win re-election with a majority and lessen the uncertainty over Brexit.

As a result, a hung parliament or a win by the hard left Labour Party would likely see the pound fall sharply.

Sterling hit its highest since mid-2016 at A$1.9385 GBPAUD= early this week, so it has a lot of room to fall if the result surprises. (Editing by Shri Navaratnam)

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.