SYDNE Nov 22: The Australian dollar licked its wounds on Friday after the head of the country’s central bank said he was open to intervening to weaken the currency, while the New Zealand dollar bounced off lows as investors squared up short positions.
The Aussie skidded to a near three-month low of $0.9198 in offshore trade before edging back up to $0.9244.
It was also hard hit against the euro and the pound. The common currency climbed to a near three-month peak of A$1.4621 , bringing in sight the August high of A$1.5029. The pound surged to a three-year peak overnight with charts pointing to further upside. It was last at A$1.7520.
Much of the pressure for the Aussie came after Reserve Bank of Australia Governor Glenn Stevens stepped up his rhetoric against the strength of the currency, which he has long argued was overvalued when judged against economic fundamentals.
While Stevens made clear that intervention was not without risks, markets were in the mood to sell the Aussie especially after a closely watched report showed China’s factory sector grew at a slower pace in November.
Not helping was encouraging U.S. Data that underpinned the U.S. Dollar, as well as expectations the Federal Reserve will have to start tapering its asset buying at some point, whether December or March.
All that left the Aussie nursing hefty losses for the week. It was down 1.3 percent against the U.S. Dollar since Monday and a clear break below $0.9200, the 61.8 percent of the August-October rally, would open the way to a test of a three-year low of $0.8848.
By contrast, the New Zealand dollar managed to pop up to a session high of $0.8245 following tame comments by a central bank official about kiwi strength.
Investors had expected a stronger complaint by Reserve Bank of New Zealand Assistant Governor John McDermott, who said that the currency was overvalued and that the RBNZ would like to see it lower.
The kiwi was broadly stronger, clocking an intraday high around 83.40 yen. It also shone against the Aussie , which slid to around NZ$1.1194, closing in on a two-month low around NZ$1.1192 hit earlier this week.
Expectations that the RBNZ will raise rates from a record-low 2.5 percent early next year also helped the kiwi .
Market participants said McDermott’s comments were seen as part of the central bank’s usual jaw-boning against currency strength, in contrast with the RBA’s more aggressive effort to talk down the Aussie.
‘There was no smoking gun in the speech. All it said was that the kiwi is overvalued, there was nothing new in it at all,’ said Tim Kelleher, head of institutional FX sales at ASB.
Traders had bought back the currency after it fell to a one-week low of $0.8175 on Thursday, tumbling in sympathy with losses in the Aussie. Yet, the kiwi was still down 1.3 percent since Monday.
Kelleher said that despite its slide the previous day, support had held at the kiwi’s 200-day moving average of $0.8173, which also prompted demand. But he added that offers seen above $0.8250 would likely limit further gains for now.
New Zealand government bonds inched lower, nudging yields 1.5 basis points higher across the curve. Bonds remained on the back foot following relatively weak demand at an offer of inflation-linked bonds on Thursday.
Australian government bond futures were a touch softer with the long-end of the curve at 20-month lows. The three-year bond contract eased 1 tick to 96.820, while the 10-year contract fell as deep as 95.700, a level unseen since March 2012. A break below 95.600 would test the lowest in nearly three years.
(agencies)
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