SYDNEY, 25 Nov (Reuters) – The Australian and New Zealand dollars were rolling on Wednesday as optimism about a vaccine-driven global economic recovery boosted commodity prices and bond yields.
Strong Chinese demand for steel lifted iron ore prices to near their highest levels in more than six years, a windfall for Australia as the ore is its single largest export producer.
That helped the Aussie rise to $ 0.7365, after finally breaking resistance at the previous November peak of $ 0.7340 to be almost 5% higher for the month so far.
The next hurdle is September’s peak at $ 0.7413 and a break there will take him into territory last visited in August 2018.
The kiwi dollar extended its run to $ 0.6974 and traded briefly above $ 0.7000 for the first time since mid-2018. It’s up nearly 5.5% for the month so far.
The latest gains came on Tuesday when the New Zealand government asked the central bank to consider the issue of soaring house prices in its policy considerations.
Reserve Bank of New Zealand (RBNZ) governor Adrian Orr on Wednesday noted the bank was already accounting for housing, but investors still assumed the additional focus on hot house prices would hinder further easing.
“The proposal to change the RBNZ’s mandate to explicitly include house prices is read by market traders as a potential tightening of monetary policy,” said Kiwibank chief economist Jarrod Kerr. “Further rate cuts appear to be pushed to the edge of the table.”
The overnight index exchange now implies an easing of around 8 basis points by the end of 2021, compared to a cut of more than 25 basis points just a few weeks ago.
Long-term bond yields shot higher as the curve got steeper. The five-year newspaper yield hit the highest since August at 0.385%, far from the -0.03% touched in late September.
The ten-year yield hit the highest since July at 0.98%, after gaining 42 basis points so far this month.
Australian bonds are also feeling the pressure with the 10-year yield rising at 0.944% after gaining 10 basis points in just three sessions.
The three-year bond fell slightly to 99,825, but was supported by a purchase from the Reserve Bank of Australia (RBA) aimed at keeping yields close to 0.10%.
Edited by Stephen Coates