SYDNEY (Reuters) – The Australian dollar gained ground on Tuesday, helped by high resource prices and the rapid pace of vaccinations in the country, while New Zealand bond yields soared before an imminent rate hike. local treasury.
The Aussie strengthened 0.2% to $ 0.7303, after recovering from a decline to $ 0.7266, but remains cautious on resistance at $ 0.7316. It rose slightly after the resilience of the support at $ 0.7220 forced speculators to cut overcrowded shorts.
The Kiwi Dollar was at $ 0.7020, having encountered resistance around $ 0.7030 overnight, although the support at $ 0.6982 has proven to be strong so far.
Supporting the aussie, data showed retail sales fell 1.7% in August, as analysts expected coronavirus lockdowns to lead to a 2.5% drop.
A rapid and sustained acceleration in vaccinations means the retail business will resume opening from next month.
“We would attribute the outperformance of the AUD to the renewed interest in reopening reflation / ‘living with Covid’ trading,” said Ray Attrill, head of foreign exchange strategy at NAB.
“AUD has been the boy of choice whenever doubts about the speed of the global economic reopening have surfaced in recent months.” Bets on reflation pushed energy prices higher, especially for oil and gas, and pushed bond yields up sharply.
Attrill noted that gains in gas and coal prices are keeping Australia’s terms of trade at record highs despite a sharp drop in iron ore prices in recent months. Australia is a major exporter of all three resources.
Rising energy costs were fueling speculation that global inflation would stay higher for longer, and led some major central banks to start normalizing their policies soon.
Markets have advanced the likely timing of a first hike by the US Federal Reserve, sending two-year Treasury yields to 18-month highs of 0.31%.
The Reserve Bank of Australia (RBA) still insists it hold rates at 0.1% until 2024, which has kept local two-year yields at just 0.027%.
As a result, the spread between Australian and US rates widened to -28 basis points, from -20 basis points a week ago. The 10-year bond has tended to track Treasuries more closely, keeping its yield spread around -4 basis points.
New Zealand is in a different world as its central bank is expected to start a series of rate hikes next week and two-year yields are already up 1.04%.
Ten-year bonds are returning 1.98%, the highest since a brief spike in March of last year.