The Australian and New Zealand dollars rose near multi-week peaks on Thursday after the US Federal Reserve signalled a gradual approach on raising interest rates and set a fire under bond prices. The Australian dollar stepped up to $0.7510, from Wednesday’s low of $0.7443, having bounced more than a full US cent since May 9. Resistance was found at a three-week high of $0.7517.
The Aussie also extended gains on the yen to 83.80, moving some distance away from last week’s low of 81.71. Much of the rise came on broad U.S. dollar weakness after minutes of the Fed’s policy meeting wrong-footed some who had expected a more hawkish tone.
Bond prices received a fillip, sending Australian government bond futures to six-month highs. The three-year bond contract gained 4 ticks to 98.290, while the 10-year contract was up 4.5 ticks to 97.5300. The 20-year contract was also 4.5 ticks higher at 96.9550.
Meanwhile, the spread between Australian and U.S. 10-year government bonds widened to 19 basis points, from 17 basis points on Wednesday. Across the Tasman sea, the New Zealand dollar edged up to $0.7046, from $0.7030 early, and a whisker away from a peak of $0.7053 touched on Wednesday. A break above would be the highest in a month.
The kiwi dollar is among the top performing currencies, showing a gain of 2.6 percent this month. Underpinning its outlook was New Zealand’s strong fiscal strength after the government said it expected to post a bigger-than-forecast budget surplus in 2017.
The government said it also plans to invest the extra cash in infrastructure to fuel the growing economy. “The increase in spending for the next fiscal year is pro-growth and lifted interest rate expectations,” said Elias Haddad, a strategist at Commonwealth Bank of Australia.
“It’s in favour of the New Zealand dollar,” he said, seeing the first rate hike in late 2018. New Zealand government bonds also gained, sending yields one basis point lower at the long end of the curve.
