The Australian and New Zealand Dollars are inching higher on
Thursday, but trading inside yesterdays range suggesting investor
indecision and impending volatility as investors awaited more guidance
on U.S. monetary policy and whether the recent spike Treasury yields was
just a flash in the pan or the start of longer-term shift.To get more
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The Aussie is currently straddling the midpoint of its range for the
year at .7743 while the Kiwi is trading just below its same mid-point at
.7232.
The price action has been primarily guided this week by the movement
in U.S. Treasury yields. Rising yields have made the U.S. Dollar a more
attractive investment since the first of the year, encouraging the
holders of long Australian and New Zealand Dollars to trim their bullish
positions.
Treasuries yields eased back a little on Wednesday after more Fed
officials played down the chance of a tapering in asset buying this
year, but they have bounced back in Thursdays early trade.Yields on
10-year Australian debt had dipped to 1.043%, from a seven-month peak of
1.118% at the start of the week. That left the spread with U.S. bonds
at zero, down as much as +11 basis points in December. The tightening
spread drove investors out of the Aussie and into the Greenback.
The first Australian T-note sale of the new year on Thursday drew
strong demand with an April 2021 line drawing bids for almost seven
times the A$750 million ($581.03 million) on offer, producing an average
yield of just 0.0089%.Given this weeks price action, investors are
beginning to wonder whether the Reserve Bank of Australia (RBA) will
extend its current A$100 billion bond buying campaign past the deadline
of April given the surprising strength of recent economic data.
Job vacancies, retail sales, home building and house prices have all
indicated a brisk recovery is underway, seemingly lessening the need for
more monetary stimulus.
“The risk is that unemployment falls more sharply than currently
forecast by the RBA and Treasury,” said Tapas Strickland, a director of
economics at NAB.
“While very welcome, that would likely have significant implications
for the future settings of unconventional policy measures and in turn
for market pricing.”
Look for potential volatility later in the session at 17:30 GMT when
Federal Reserve Chairman Jerome Powell speaks. His comments may
determine how soon the U.S. central bank will start reducing debt
purchases.
The Wall